NYSE:RWT Redwood Trust Q2 2024 Earnings Report $5.94 +0.09 (+1.54%) As of 03:59 PM Eastern Earnings HistoryForecast Redwood Trust EPS ResultsActual EPS$0.13Consensus EPS $0.12Beat/MissBeat by +$0.01One Year Ago EPS$0.14Redwood Trust Revenue ResultsActual RevenueN/AExpected Revenue$28.13 millionBeat/MissN/AYoY Revenue GrowthN/ARedwood Trust Announcement DetailsQuarterQ2 2024Date8/1/2024TimeBefore Market OpensConference Call DateThursday, August 1, 2024Conference Call Time8:00AM ETUpcoming EarningsRedwood Trust's Q1 2025 earnings is scheduled for Wednesday, April 30, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Redwood Trust Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 1, 2024 ShareLink copied to clipboard.There are 12 speakers on the call. Operator00:00:00Good afternoon, and welcome to the Redwood Trust, Inc. 2nd Quarter 2024 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Kaitlyn Martz, Redwood's Head of Investor Relations. Please go ahead, ma'am. Speaker 100:00:15Thank you, operator. Hello, everyone, and thank you for joining us today for our Q2 2024 earnings conference call. With me on today's call are Chris Abate, Chief Executive Officer Dash Robinson, President and Brook Rillo, Chief Financial Officer. Before we begin, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward looking statements. Forward looking statements are based on current expectations, forecasts and assumptions and include risks and uncertainties that could cause actual results to differ materially. Speaker 100:00:46We encourage you to read the company's annual report in Form 10 ks, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward looking statements. On this call, we may also refer to both GAAP and non GAAP financial measures. The non GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non GAAP financial measures are provided in our Q2 Redwood review, which is available on our website, redwoodtrust.com. Also note that the contents on today's conference call contain time sensitive information that are only accurate as of today. Speaker 100:01:24We 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. With that, I'll turn the call over to Chris for opening remarks. Speaker 200:01:38Thanks, Kate, and welcome, everyone, to Redwood's Q2 2024 Earnings Call. As always, I'll kick off our opening remarks before handing it over to Dash and Brooke to cover our operating and financial results. At our March Investor Day, we said that investors in RWT hold the keys to tremendous optionality on the future of housing finance. This statement was meant to reflect our unique strategic positioning in response to anticipated regulatory shifts and the rapid emergence of private credit investors in our sector. Today, after a second consecutive quarter of approximately 50% growth in residential consumer lock volumes, combined with 40% quarterly growth in residential investor loan volumes, validation of that statement is upon us. Speaker 200:02:26Year to date, we have distributed close to $3,500,000,000 of our collateral as investors continue to exhibit strong demand for the residential assets we are uniquely positioned to source and manage. And now, as the Fed finally begins to exhibit signs that its historic tightening cycle is ending, a macro environment to facilitate transformative growth can emerge. Putting it all together, we think the case for Redwood has never been clear. To recap our 2nd quarter results, we improved our operating efficiency on the back of strong volumes, while realizing a 20% reduction in fixed costs. Earnings available for distribution was $0.13 per share, 70% higher than the prior quarter. Speaker 200:03:08Our June 30 GAAP book value $8.73 per share, roughly flat on the quarter, and we estimate book value was up an additional 1% to 2% at July 31. Progress with our bank partners illustrates the core asset liability challenges these institutions still face when funding fixed rate mortgages with deposits. This drives shifts in bank product and portfolio strategies and has further evolved how banks serve their customers. As we continue to focus on forward flow jumbo production with the banks, we now consider the $1,300,000,000,000 of seasoned jumbo loans on bank balance sheets to be an addressable market for us. In fact, in the Q2, approximately 35% of our bank lock volume came from such seasoned portfolios. Speaker 200:03:57All told, our lock volume with banks grew 80% quarter over quarter. On the regulatory front, recent commentary from the Fed also suggests that a re proposal of the Basel III Endgame rules is imminent. Though we are the first to acknowledge that anything can happen in Washington these days, we're encouraged by the early feedback on Christy Goldsmith Romero, who has been nominated to be the new Chair of the FDIC. Goldsmith Romero stated publicly that she is very open to the re proposal of the Basel III Endgame capital requirements and that the agency under her leadership will strive to follow congressional intent concerning a law requiring banking agencies to tailor their capital regulations to bank size. We currently expect to vote in this nomination to occur in September after the Senate returns for a 3 week session beginning the week of September 9. Speaker 200:04:49Turning to our investor loan business. Demand from private credit institutions helped drive the strongest return for our residential investor segment since 2021. As you recall, our recently established partnerships with CPP Investments and Oaktree are indicative of the ongoing demand we have witnessed for residential investor loans. These joint ventures combined with ongoing inroads with whole loan buyers will help evolve the platform's revenues toward recurring and predictable fee streams, facilitating scale with less direct capital usage through time. Looking ahead to the second half of the year, we remain pleased with our market positioning and we'll continue to execute on our strategic goals. Speaker 200:05:31However, we're preparing for unexpected challenges, particularly in light of an already unprecedented presidential election cycle. The rates remain stubbornly high, a data driven Fed now has increasing evidence to commence a more accommodative monetary policy, and we're optimistic on what that could mean for our markets across the residential housing landscape. We look forward to further updating you on our progress as the regulatory, monetary and political changes take shape this fall. And now, I'll turn the call over to Dash to discuss our operating performance in more detail. Speaker 300:06:08Thanks, Chris. 2nd quarter operating performance across our platforms reflected important progress on wallet share, improved efficiencies and continued momentum on distribution. We grew revenues, increased activity with joint ventures, sold term loans to a new strategic investor and maintained our monthly cadence for jumbo loan securitizations. Residential Mortgage Banking's lock volume growth was driven by increased penetration across our seller base, including the 80% quarter over quarter increase in bank volumes that Chris referenced. As seasonality helped nudge overall industry volumes up from the Q1, we estimate our overall 2nd quarter market share in jumbo to be approximately 6%, up from 5% in the Q1. Speaker 300:06:53Activity on the quarter was highlighted by the purchase from a bank of a sizable pool of seasoned hybrid adjustable rate mortgages or ARMs that we expect to settle later in August, an important development that underscores our role as a solutions provider to bank balance sheets. The transaction also represents attractive diversification from our traditional 30 year fixed rate offering, which given banks' traditional footprint in ARM lending may become a growing opportunity for our business. As is often the case when market conditions become more favorable, new players in our space attempt to enter or reemerge, a phenomenon we saw in the Q2 as a handful of issuers pursued market share from independent mortgage bankers or IMBs. This dynamic quickly shifted as securitization spreads began to retrace tightening from earlier in the year. IMBs remain a long standing competitive advantage for our business and in spite of these entrants, we grew IMB lock volume by 10% quarter over quarter. Speaker 300:07:50IMBs represented 50% of quarterly volume and we expect this group to remain a critical focus in driving our overall wallet share higher. Distribution has kept pace with the growth and we priced 3 jumbo securitizations during the quarter while maintaining an active posture on pipeline hedging. This drove gross margins of 72 basis points, just below our historical target range, despite TBA widening and softening in issuance spreads. Already in the Q3, we priced our 7th jumbo securitization of the year, backed by $638,000,000 of collateral and sold $150,000,000 of whole loans to an insurance company. Our residential investor segment also posted impressive upticks Q2, funding $459,000,000 of loans, up 41% from the Q1. Speaker 300:08:40Importantly, origination momentum came from higher margin products where we have prioritized growth. After several quarters of impact from persistently higher rates, term loan volume rose 90% quarter over quarter and was close to half our overall funding mix, key progress given our historical footprint in this product. We also achieved record volume for both single asset bridge and DSCR loans, growing each 50% from the Q1. July fundings for the full business were in line with average monthly volumes for the 2nd quarter. Market demand for our products, most notably from large pools of institutional capital seeking long term partnerships remains a key differentiator for the platform. Speaker 300:09:21We sold $415,000,000 of loans in the 2nd quarter, a high watermark for distribution away from securitization. This included sales to our joint ventures, including the initial funding on the CPP Investments JV and an accretive sale of $240,000,000 in term loans to a large insurance backed buyer. This was a notable transaction and represented a sizable new investor for our loans. Our results reflect the benefits of the partnerships that we have established and looking ahead, we believe the depth of our distribution sets us apart in managing the business to durable profitability. Credit performance in our residential investor portfolio has remained stable overall, but continues to command asset management focus, particularly related to workout activity within our legacy multifamily bridge portfolio, a strategy we largely discontinued in the summer of 2022. Speaker 300:10:13Through the process of stabilizing this portfolio, we have continued to incur incidental workout costs as we progress toward productive resolutions. Given the pace of pay downs and workout activity, we expect this portfolio to continue factoring down in the next 2 to 3 quarters with moderating interest rates potentially accelerating payoff and refinance activity. The 2nd quarter was a recent high point in deployment within our investment portfolio with over $130,000,000 of capital put to work. Investments were generally focused on shorter duration, higher coupon securities from 3rd parties and help drive the growth in net interest income that Brooke will describe in more detail. Fundamentals within our overall $3,400,000,000 investment portfolio continue to perform well, particularly in our jumbo and reperforming loan performance has materially exceeded our model and expectations. Speaker 300:11:04The carrying value of this portfolio has been significantly impacted by the 550 basis point hike in benchmark rates over the past 2 years. As rates stabilize and potentially begin to come down, the book values of our long term fixed rate investments stand to directly benefit. With the overall portfolio still carried at an aggregate $2.18 per share net discount, 65% of which is from our jumbo and reperforming loan securities, This represents a key source of earnings upside that in recent quarters has been hard to unlock. I will now turn the call over to Brooke to discuss our financial results in more detail. Speaker 400:11:41Thank you, Dash. We reported GAAP earnings of $14,000,000 or $0.10 per share for the 2nd quarter compared to $29,000,000 or $0.21 per share in the Q1. Earnings available for distribution or EAD was $19,000,000 or $0.13 per share for the 2nd quarter, up 70% from $11,000,000 or $0.08 per share in the 1st quarter. This resulted in an EAD return on common equity of 6.5% primarily due to growth in net interest income and higher net income contributions from both our mortgage banking platforms. We saw positive fair value changes on our investment portfolio in the 2nd quarter, but performance lagged the Q1 due to higher reserves on our bridge loans. Speaker 400:12:25Our book value per share was $8.73 a slight decrease as compared to $8.78 at March 31. Including our $0.16 common dividend, we delivered an economic return of 1.3%. This brings the year to date total economic return to nearly 5%, which would exceed our dividend yield on book value on an annualized basis, underscoring our ability to deliver a stable to growing book value and consistent dividend despite a volatile market backdrop. Higher volumes and improved operating efficiencies resulted in higher returns across our operating platforms during the quarter. The residential consumer mortgage banking segment delivered a 16% return and the residential investor segment delivered a 13% return adjusting for the amortization of acquisition related intangibles. Speaker 400:13:12Net interest income continued to grow in the 2nd quarter increasing by $1,000,000 to $25,000,000 The roughly $130,000,000 of accretive capital deployment during Q2 contributed roughly $4,000,000 to net interest income. This was somewhat offset by lower net interest income from the Bridge portfolio due to a smaller portfolio size as we saw nearly $400,000,000 of payoffs and $200,000,000 of transfers into joint ventures in the first half of the year. Additionally, loan modifications led to a 10 basis point reduction in our weighted average coupon on the portfolio compared to Q1. We anticipate that continued accretive capital deployment and the resolution of lower yielding legacy Bridge assets will unlock incremental capital for redeployment further optimizing our investment portfolio's net interest income. We benefited from measures taken in recent quarters with general and administrative or G and A expenses decreasing by $1,200,000 from the Q1 primarily due to a 20% reduction in fixed employee compensation. Speaker 400:14:13Given the progress in scaling our volumes, efficiency is also improved in our operating businesses. The cost per loan for residential consumer decreased to 22 basis points from 36 basis points in the 1st quarter driven by bulk activity. With 2 consecutive quarters of 50% growth in lock volume, we anticipate that operating expenses will trend back closer to a 30 to 35 basis point historical target range. We also saw the net cost to originate for residential investor improving to just under 100 basis points in the 2nd quarter, which is also approaching long term efficiency targets for that business. We maintained a robust cash position of $276,000,000 at quarter end effectively unchanged from the Q1 even as we grew the business and deployed accretive capital. Speaker 400:14:57Post quarter end, we retired our 2024 outstanding convertible debt using existing cash on hand, reducing our total convertible debt outstanding to 364,000,000 down 43% year over year. We closed 1 temp securitization and 1 re securitization freeing up approximately $70,000,000 of incremental cash. Pro form a for these activities are July 31 cash and cash equivalents position stood at approximately $275,000,000 dollars We are active on the financing front securing $2,500,000,000 in new or refreshed capacity including $1,000,000,000 to support our joint ventures. These new facilities executed on favorable terms of existing bank partners are expected to support growth of our own production. We added a few new facilities to maintain sufficient runway for our residential consumer pipeline with a $300,000,000 facility that supports our capital light, high capital turn strategy. Speaker 400:15:51Additionally, during the Q2, we drew down $125,000,000 of our CPP investments facility and still have another $125,000,000 remaining under that facility. We also completed an $85,000,000 senior unsecured corporate note offering with a 9% coupon inside our inaugural issue in January providing incrementally accretive capital for deployment. Total recourse leverage was 2.1 times for the 2nd quarter, up from 1.9 times in Q1. The increase was attributable to higher balance inventory partially offset by the conversion of over $200,000,000 of recourse debt secured by bridge loans to longer term non recourse structures. We believe we have sufficient capacity to support the further growth of our operating platforms with $6,100,000,000 in total financing capacity at quarter end, of which $3,800,000,000 was undrawn and available. Speaker 400:16:45Looking forward, we aim to build on the momentum generated in the first half of twenty twenty four. We remain committed to growing market share and deploying capital accretively to grow earnings throughout the remainder of the year. And with that, operator, we will open the line for questions. Operator00:17:00Thank you. We will now be conducting a question and answer Our first question comes from Bose George with KBW. Please proceed with your question. Speaker 500:17:32Hey, everyone. Good morning. Can you talk about the bulk pipeline? And also, can you discuss just the economics of the bulk business? Like was there any financial impact from the acquisitions this quarter? Speaker 500:17:43Or is that when you when it's disposals? Yes, how that differs in any way from the regular flow volume? Speaker 300:17:52Sure, Bose. It's Dash. I can take that. In terms of the prospects for bulk, I think we remain really optimistic that the transaction we talked about that we expect to settle later this month is the first of several. Obviously, those are a little bit more episodic conversations with banks versus our sort of point of sale flow business. Speaker 300:18:14But if you look at the dynamics, number 1 with rates, obviously, with this recent rally, we're getting much closer to a point where dollar prices may make sense for certain banks looking to dispose of seasoned collateral. Obviously, the dynamics with Basel, banks looking to manage overall balance sheet sizes continues to be a dynamic that we see a lot and we think is a tailwind for availability of bulk. So those are all positive tailwinds and oftentimes including this situation that we talked about, it involves being around the hoop with these banks and constant dialogue whether that's being active on the flow side already or simply being in with the C suite of these banks with the decision makers and being the first phone call when they decide to sell those portfolios. So obviously a bulk pipeline looks and feels a little bit different than flow just given how episodic it can be, but we feel like there are a lot of tailwinds, including being able to get one done. There's always a lot of learnings particularly with seasoned portfolios that really matter. Speaker 300:19:18In terms of the economics, I think we are appropriately conservative in terms of how we thought about the economics in the Q2. The pool, as I mentioned, is scheduled to settle later this month. We'll intend to execute that in the Q3. So there's hopefully some incremental upside there. And like we talked about on the call, the fact that it's hybrids, I think is meaningful. Speaker 300:19:41As you know, hybrids are not commonly securitized. They've historically been a bank product. Sometimes they do trade bank to bank or maybe even with insurance companies. But we're really excited to control that production because we think it's differentiated in terms of what the market is buying. And I think also sets us up well to potentially do more hybrids on the run as well. Speaker 500:20:03Okay. So that makes sense. But just in terms of like when you think about your target range of 75 to 100, the bulk doesn't necessarily need to kind of fall there. Is that fair? Speaker 300:20:15It could. I mean, I think for bulk where we're in touch with larger loans and there's less fall pipeline risk to manage. You're right, it could make sense to work for a little bit below that. That's not how we feel like we're working on this portfolio. We felt like with this portfolio we're working within our range. Speaker 300:20:32But you're right, with bulk there are efficiencies and through time it could make sense to work for a little bit less if the capital efficiency is ultimately there. Speaker 500:20:43Okay, great. And then actually just one more on switching to the multi the bridge loan, the delinquency increase. Can you talk about the drivers? Was that on the multifamily sync trends on what drove that? Speaker 300:20:56Sure. So the in terms of the overall trend of the book, it was a modest uptick. It was largely driven by multifamily. We did resolve several of our 90 plus bucket during the Q1. In general that book goes I would say just a few things. Speaker 300:21:15In the Bridge portfolio overall we've continued to see runoff. We had close to a $250,000,000 of payoffs in the Q2. So some of that increase is because we actually do have a smaller portfolio at this point. In general, we're seeing the lending markets open up. We saw a lot of loans refinance out in the Q2 that we were probably less constructive on refinancing. Speaker 300:21:39So you are definitely starting to see flow of funds increase in those markets. So it was definitely a modest uptick, but we resolved a lot in the second quarter and importantly that portfolio remains ring fenced. It's just over 10% of our overall capital at this point and we're continuing to see it factor down. Speaker 500:21:57Okay. Thank you. Operator00:22:02Our next question is from Douglas Harker with UBS. Please proceed with your question. Speaker 600:22:09Thanks. Hoping you could talk a little bit about the decline in revenue margin this quarter. How much of that would you attribute to the competition you mentioned versus kind of the volatility in TBA and securitization spreads? Speaker 200:22:29This is Chris. On margins overall, there's a lot of forces at play. There's a lot of issuance activity that's picked up. A lot of it has to do with the mix of the collateral. But what I would say is, we continue to become more efficient and so we're controlling what we can control. Speaker 200:22:48I do think that we're still projecting historical ranges for margins at 75 to 100 and jumbo for instance. We still like where that sits, mostly because there's pushes and pulls in the market. And as margins go up, you see more competitors, which we have seen very recently. And when there's a glut of supply, deals widen and competitors leave and margins trend back to the range. So I think it's part of the noise of the business, but I still think the historical ranges that we speak to are the right way to think about the economics. Speaker 600:23:36Great. And I apologize if I missed sorry, go ahead Brooke. Speaker 400:23:41No, I was just going to say as a reminder, we were we have been the last the prior two quarters kind of well in excess of our historical gain on sale as primarily securitization spreads were continuing to tighten in on execution. And so for us to be able to generate in and around our historical gain on sale win both AAA spreads to TBAs and TBAs are widening throughout the quarter, we thought we think was pretty well underscore the effectiveness of our hedging regime there. Speaker 600:24:16Great. And apologize if I missed this, but did you give an outlook for either July locked volumes or your outlook for the full quarter? Speaker 200:24:28No, we didn't. Speaker 600:24:32Okay. Thank you. Operator00:24:37Our next question comes from Kristen Love with Piper Sandler. Please proceed with your question. Speaker 700:24:43Thanks. Good morning, everyone. First, can you just talk about the HEI product a little bit, which saw a big pickup in revenues in the quarter. What drove the pickup there? Was it primarily just valuations there? Speaker 700:24:54And also just is HEI an area you're bullish on near term with rates are and how you view the outlook? Speaker 400:25:02Yes, it's a great question. The main driver of those at work, you're correct and then the portfolio in terms of its overall valuation was up, so those were really fair value changes on the portfolio. A lot of what we have in terms of income on that portfolio is almost think about it as like recurring accretion. Those underlying options are struck at a discount to appraised value and so almost act like a bond instrument in certain ways that a lot of our return modest pickup in the a modest pickup in the fair values also from both an improvement in HPA throughout the quarter as well as a small improvement in the forward forecast for HPA as well. Speaker 700:25:57Great. Appreciate that, Brook. And then can you just also just speak to your current thoughts on the dividend? And if you and the Board think you are at the right level at $0.16 when you look at GAAP EAD and then also the rate outlook with the Fed likely to begin cutting in the coming months. And then what you might need to see to get back to covering the dividend with the EAD? Speaker 700:26:19Thanks. Speaker 200:26:21Yes. I'd say high level and Brooke can color commentate. We feel very good about the current level of the dividend and we feel like starting with our March Investor Day, we're tracking towards EAD covering it, the dividend at 16, EAD was 13. I think more importantly though in the big picture, there is the prospect of a rate cut and we talked about the macroeconomic environment for our sector has been very, very challenging in the past few years. As that environment shifts, that should definitely be a tailwind behind us not only in our ability to lower funding costs and generate incremental net interest income, But the book, the portfolio, we have a lot of longer duration fixed rate assets that have been impacted by rising rates over the past few years. Speaker 200:27:21And to see that start to recover, that's another facet of earnings generation on the GAAP side that is quite meaningful and how we think about the dividend going Speaker 700:27:35Yes. Thank you, Dash. Speaker 400:27:39Just to pick up on Chris' comments. One thing to answer the part of your question around just earnings covering the dividend. I think when we put out the Investor Day comments that was really under the backdrop of a higher for longer or kind of more of the same rate backdrop. So a lot of what we laid out was really centered around our capital deployment. We have raised or unlocked a significant amount of capital from the fact that we carried such low recourse leverage in the portfolio. Speaker 400:28:11You saw that tick down again this quarter, so sitting just over a half a turn. When we think about the dry powder that we have to invest to continue to drive NII through accretive capital deployment, we really think about it as about $250,000,000 today. We cited our $275,000,000 of current cash pro form a for the other $125,000,000 or so remaining under CPP. And we have a lot of sources of capital, I think, behind that just in terms of the unencumbered assets that we still carry in our portfolio. As we mentioned in some of our prepared remarks, we are continuing to unlock some of those unencumbered assets through term securitization term securitizations that are pretty accretive and allow us for incremental capital to be redeployed at higher spreads today. Speaker 400:29:06And then furthermore, I think if you to Chris' point on a rate cut, if you look at our the mix, especially with the uptick in residential volume, we have about $1,000,000,000 more of floating rate debt than assets today, because of that fixed rate residential pipeline that we financed with warehouse line debt. That is we see immediate pickup to NIM there. Speaker 700:29:31Great. Thank you. Appreciate taking my questions. All very helpful. Operator00:29:37Our next question comes from Jason Werber with Jones Trading. Please proceed with your question. Speaker 800:29:43Hi, good morning. Thanks for taking my question. Dash, I might have missed your remarks about July, but the jumbo retention rate looked quite a bit higher at 6:30. But with the effect of the securitization subsequently that might be more evened out, is that correct? Speaker 400:29:58Yes, that's right. We've since then done a deal in July. You're seeing so we have about $963,000,000 of loans on balance sheet. You could continue to see that increase just as we continue to gain share and further support growing our volumes. But we are at about a deal a month cadence in the securitization markets right now. Speaker 400:30:20So depending on the timing of those securitizations, you might see that balance fluctuate up and down over quarter end. Speaker 800:30:28Got it. Thank you. Speaker 900:30:29And next I wanted Speaker 800:30:29to ask about HEI as well. Can you talk about the build out of the sort of the sourcing network behind that? Speaker 300:30:38Sure. I can take that one. This is Dash. When we decided to build that business organically a couple of years ago, we felt like we had a couple of main competitive advantages. Number 1 was just the operational infrastructure we have in place with the existing businesses, which is a stark contrast to a lot of the newer players that have come up over the past few years. Speaker 300:31:02But also inherent in that is this sort of wholesale sourcing network, where we can source potential HEI customers from our existing loan sellers or other sort of B2B contexts that a lot of other players aren't doing. The traditional model is more direct to consumer spending a lot of money on marketing to get the word out assessing your pull throughs etcetera. We definitely do a little bit of that. We have a modest spend on direct to consumer. But the real moat for that business from our perspective is the moat we have in other business was just this unique relationship that we have with 200 plus sellers. Speaker 300:31:40We have other relationships with other platforms that are in touch with other groups of consumers that may be interested in HEI. There's a whole emergence of secondary financing with second lean products. As you probably saw Freddie Mac has sort of provisional approval to start purchasing closed in 2nd. So I bring that up because it sort of illustrates the overall momentum in the space and that there's just a whole group of consumers we can unlock on a wholesale basis that we can serve through Aspire, which is the HEI platform. So it's still early days. Speaker 300:32:11We've been very judicious about the spend and the rollout because of just ranking the rate environment and also the relative newness of the product. But we're starting see a lot of momentum in those channels are excited to see what that brings in the second half of the year. Speaker 600:32:26All right. Thank you very much for that color. Operator00:32:32Our next question comes from John Santezza with Wells Fargo. Please proceed with your question. Speaker 600:32:39Yes. Can you talk about, whether or not you think Fed cuts could help some of the bridge loans get further refinanced out and when you think that delinquency rate might peak? Speaker 300:32:52Good question, Don. Thank you. I think there's a few things going on. I think there's the math of an explicit cut. We're certainly floating rate debt burdens will come down if SOFR goes down in the second half of the year. Speaker 300:33:09That's a math equation that will help incrementally. But I think maybe overlay there is just what's happening with the sentiment in the market and the fact that I think the market has much more clarity at this point on potential timing of the Fed cutting and when we're going to go into a more accommodative cycle. And I think we're already seeing that make a difference kind of like I mentioned in response to Bose's question. It's already making a big difference in how capital is flowing in the space. Not only are you seeing the lending markets open up, not only like in conduit land, but also private lenders that were probably more willing to step up and refinance loans today than they were 6 to 9 months ago. Speaker 300:33:53You're seeing a lot of equity on the sidelines start to come off the sidelines in housing finance, where there's again, there's more clarity to what's going on with interest rates, more conviction around investments, things of that nature. And you're also seeing borrowers remain in projects. Like we like we've talked about a lot, we sort of deemphasize that strategy coming up on 2 years ago at this point. And so if you've been in a project for 2, 2.5 years and you've stuck with it, you have much more conviction now frankly than you did 6 to 9 months ago when rates were higher, the markets were harder and there was just less of a path to stabilization with rates and lowering. So I think the math will help incrementally, but I think what really matters most is sentiment and we're starting to see sentiment definitely shift, which we've seen in runoff of our Bridge portfolio, in which we're obviously pleased with. Speaker 600:34:53And so you think the delinquency rate could continue to tick up a little bit, but remain relatively contained? Speaker 300:35:02We have our arms around this portfolio. It's hard to exactly prognosticate the exact direction, but I think what we would expect to see continued pace of resolutions. We are actively engaged with outcomes on the vast majority of our 90 plus bucket at June 30. So we expect that to continue to run off. Being honest, we certainly expect to confront pockets of other issues in the portfolio. Speaker 300:35:25We expect that come up, but we've got the right asset management team in place to deal with it. We've talked a lot in recent quarters about being ahead of the curve with these sponsors, which really matters. And I think you've seen that in the pace of resolutions. So I think we will expect we will continue to see resolutions in the book. Will other stuff come up? Speaker 300:35:43Yes. But we're ahead of the curve on those issues, which I think will help with the expediency of those resolutions. Speaker 800:35:50Thanks. Operator00:35:55Our next question comes from Stephen Laws with Raymond James. Please proceed with your question. Speaker 800:36:00Hi, good morning. I wanted to touch base on NII and JV fees. Brooke, I think you mentioned some payoffs and we're going to as some investment shift see an impact there. Can you talk about the outlook for NII as more assets go into the JVs and kind of how we should see JV fees ramp? And I know in the past you guys have talked about 0.15 sets of annual EAD once that's fully scaled. Speaker 800:36:29Can you give us a timeline given the pace you've seen in the Q2 of how you when you expect those JVs to reach scale? Speaker 400:36:38Sure. I'm happy to start. I think it's a great point to raise on just the timing disconnect between we've historically we have a $100,000,000 of loans paying back to us. Speaker 100:36:52We redeploy that $100,000,000 of loans paying back to us. We redeploy Speaker 400:36:52that $100,000,000 of back right into our investment portfolio and into there might be a small revenue recognition delay between the fees being scaled and the JV combined with our 20% of the C NII piece, it unlocks tremendous amount of capital and that's what my earlier comments were centered around. The $250,000,000 I think is a conservative number for our investable capital today just given our sources of capital. That will more than offset the impact of a smaller bridge portfolio directly on balance sheet, but that would either come from more non interest earning revenue, so more mortgage banking revenue as the capital is redeployed either into our operating businesses or potentially into more third party investments like you saw us do in the Q2. Our capital deployment really generated about $4,000,000 of incremental NII. We did have an uptick in our corporate debt expense to finances, so we will continue see that NII piece grow throughout the Q2. Speaker 400:38:06Just in terms of timing, we did disclose that we put about $120,000,000 of loans into the CPP joint venture. However, that was late in the quarter. We also stood at multiple financing lines. These lines we view to be really accretive terms that are really going to help drive volume for us profitably in that business. And so Q3 is an open road for deployment into those and just given our an overall pickup in the BPL volume that we saw both on the bridge and term side, we should be over the next few quarters ramping quite nicely. Speaker 800:38:50Thanks, Brook. And I want to follow-up on kind of a broader higher level question about the bank relationships. I know over the last year or so, as you guys have really started growing that given the shift in the market, it doesn't just turn on overnight. I know there's a difference in underwriting loans for bank balance sheet versus your exit of securitization. So can you talk about how the maturation of those relationships or seasoning works? Speaker 800:39:16And are things still ramping up? And I think it probably goes to your point earlier about just being around the hoop with conversations with managements about now seeing some bulk purchase opportunities of season loans. But can you talk about how long that usually takes from forming that initial relationship to when you feel like you're really moving at 100 percent as far as capturing the flow and opportunity with those bank sponsors? Speaker 200:39:42Sure, Stephen. I'll take that one. The bank relationship building has been ongoing as you know and we're really pleased with some of the metrics that we're seeing. Certainly, bank volume as a percentage of total lock volume, number of active sellers. I think we're right about fifty-fifty between banks and IMBs and most of that momentum is with the banks today. Speaker 200:40:10So we would expect that to continue to go higher on the bank side. The relationships, the way we think about it is, we continue to be doing infrastructure building with these guys and ultimately this is the first time we've kind of declared that the 1 point $3,000,000,000,000 of jumbo sitting on bank balance sheets is officially an addressable market of ours, which is what we're trying to do. We're trying to build and grow the markets that we can address trade. For years, those were loans that we never saw. And I think that what's really interesting is as these relationships are stood up and as monetary policy shifts, we can buy loans from banks and we've been an avid seller of loans to banks. Speaker 200:40:59So what's most important is the infrastructure building and having these relationships. We sort of approach it through the context of a vendor versus just a capital take out. They invest a lot in the technology and the training. So we think that these are durable relationships. Most of our competition almost all of our competition for loans these days continues to be on the INB side. Speaker 200:41:29The vast majority of securitization activity that picked up right into July were competitors on the INB front. On the bank side, we continue to have great access and most of my personal time these days is spent working with bank executives and advancing these partnerships. So it's really exciting to start to see the work manifest into volume and earnings. And hopefully, all the work that we're doing today and over the past year, year and a half is going to contribute more significantly going forward. So for us, it's full speed ahead with the banking partners. Speaker 800:42:13Great. Appreciate the comments this morning. Operator00:42:18Our next question comes from Eric Hagen with BTIG. Please proceed with your question. Speaker 1000:42:25Hey, thanks. Good morning. A lot covered here already, but one follow-up on Corvest. Is Corvest the direct servicer for all of the loans in its portfolio? And maybe you can share how the servicing functions specifically has kind of evolved in that business as it's grown? Speaker 1000:42:39And how you're maybe managing the cost as just in light of that delinquency pipeline? Speaker 300:42:48Hey, Eric, it's Dash. Thanks for the question. So we for our Bridge portfolio, we are essentially the special services, so we can interact directly with borrowers and sponsors. For both the term and the bridge books, we're not the primary servicer, so we don't do the basic payment collection. We farm that workout to 3rd parties. Speaker 300:43:13In our securitized term portfolio, which as you know is the majority of that book, we those are the transactions. So they are rated primary and special servicers. There is very specific protocols within REMAX for special servicing. We're obviously involved as the owner for the subordinate bonds, but there is a third party name special servicer. Like I said on the bridge portfolio payment collections are done by a third party, but our asset management team is directly engaged with those sponsors as needed. Speaker 1000:43:47Got you. Okay, that's helpful. Hey, so how are you guys thinking about the cash position at this point? How much organic cash do you feel like you're generating kind of like on a quarterly basis? And how are you thinking about the pipeline of unsecured debt coming due just in light of other mortgage finance companies that have taken the opportunity to refinance their debt as well? Speaker 400:44:07Yes. I think we feel really good about our cash and liquidity position today. Pro form a for paying off our converts, we're sitting at the same cash position that we've had for the last couple of quarters and we've put a lot of money to work accretively. The only 2 kind of main recourse financing obligations that we had expecting and then around $350,000,000 or so stepping down to high 200s of maturities of our bridge portfolio over the next number of quarters. That provides a very nice source of capital for us as well as some of the resolution activity that Dash mentioned unlocks accretive capital that we can redeploy at more optimal level than where it sits today. Speaker 400:45:07We also have dry powder from the CVP facility that I mentioned and a pretty good playback for the unencumbered assets that we where we sit today. But as I mentioned in my prepared remarks, our convertible debt is down 43% year over year. We've done a lot of work on the capital structure and raising term non recourse financing. As you probably saw, we moved about $200,000,000 of bridge loans into non recourse non marginable structures. Most of that bridge book is financed today in non marginable non recourse structures. Speaker 400:45:46So we just feel really good overall about both our liquidity position, being able to go on offense and also our liability structure in general. Speaker 1000:45:57Got it. Thank you so much. Operator00:46:02Our next question comes from Rick Shane with JPMorgan. Please proceed with your Speaker 1100:46:09I apologize if some of this has been covered. I'm bouncing between calls this morning. Look, one of the interesting developments we're going to start to face is a pickup in speeds as rates fall. When we think about many of the mortgage REITs we follow where they own instruments at premiums, we're starting to factor that into our models. Historically, Redwood has owned instruments at pretty significant discounts and benefited from a pickup in speeds. Speaker 1100:46:43Can you talk a little bit about that dynamic where the accretable Speaker 700:46:54manifest? Speaker 200:46:57Sure. We can tag team this one, but I think the headline response is the vast majority of well, most REITs, I would say, these days own assets at premiums as you articulated and speeds are probably the biggest threat to those values and eroding the premium. I think for us, we've continued to talk about the fact that our books at a significant net discount. I think it's $0.18 a share of realizable discount. Speeds obviously is an accelerant to that. Speaker 200:47:37So we are definitely from a portfolio perspective in a position where speeds will help significantly. On the On the Run businesses, generally speaking, lower interest rates will help our business. I think we've been positioned for higher for longer as Brook articulated earlier and certainly past the forecast of when rates might come down has moved pretty immensely. I think last quarter, fewer predicting a rate cut even this year and now we're building a consensus towards possibly September. So the macro environment that that could create for us is definitely a tailwind. Speaker 200:48:26And the combination of starting to realize that accretable discount on the book, which again, our portfolio we've talked about multi bridge, which is actually a relatively small piece of our overall book. And as a portfolio, the credit performance of the book has been extremely strong. So when you think about what's going to move it, it's not credit, it's rates. And if you look at the numbers that come down, we'll hopefully start to that will be a contributor at least to GAAP earnings. So that's a big piece and obviously if speeds pick up for the On the Run business that means that there there's more loan activity. Speaker 200:49:12And if there's more loan transactions, there's more regular way business for us as well. So that's definitely something we can manage. I think we continue to kind of fine tune our hedging regimen for our resi business, which is obviously the rate sensitive business. And there we feel really good that we can continue to lock loans and distribute into securitizations as speeds go up. So those are all those are a few things. Speaker 200:49:41But I think overall the headline again Rick is we're positioned I think meaningfully differently than many others in the sector. Speaker 1100:49:50Got it, Chris. And if I could ask one follow-up. Is the takeout from most of your multifamily bridge, the Fannie Freddie multifamily window? And are you starting to see a pickup in activity there even though short rates remain elevated as the tenure comes down? Speaker 300:50:12Hey, Rick, it's Ash. That's definitely a piece of it. So like I said, we made about $250,000,000 of runoff in Bridge in the Q2. A good chunk of that was multifamily. Many of those sponsors do go Fannie Freddie. Speaker 300:50:28And as you know, a 10 year at 4% versus 4.5% is that's a big 50 bp difference in terms of the viability of those loans being taken out in terms of where debt yields are. So obviously this rally particularly with comments yesterday, I think is continuing to support refinances where a lot of loans that maybe didn't work with tens of 4.5 work now. So we're definitely seeing that and the loans we want to recapture into our term book, we're doing that. Like I mentioned a few minutes ago, there are a lot of loans we're happy to see go away and we're also seeing those go away. So I think it's the GSEs. Speaker 300:51:09But as I also mentioned, there's a lot of private lenders that I think are more comfortable coming into the space to take loans out that may not have as clear a path to a GSE takeout, but there's just more there's liquidity flowing a little bit more freely in the system even the way from sort of the Uber institutional takeouts like the GSEs. All of this is a tailwind to pay downs and then things of that nature. But you're right, we're in a pocket of rates where incremental rallies made a lot of difference between loans that work and loans that don't into GSE takeouts. Speaker 1100:51:44Got it. And thank you. And sorry, I sort of had you guys repeat that. Appreciate it. Speaker 300:51:50No. All good, man. Operator00:51:53Our next question comes from Steve Delaney with Citizens JMP Securities. Please proceed with your question. Speaker 900:52:02Thanks. Good morning, everybody. Nice to see you guys are staying busy out there. The just I wanted to pick up on the rate thing too before Rick brought it up. We've had this big rally in the 10 years since late April and about 70 basis points. Speaker 900:52:16I'm just curious if you're already if that 70 basis points or so move and probably get a little more. Are you already seeing any impact on your locks, number 1? And this whole rate phenomenon, this could go on, we could be looking what, 10 year, 3.5%, maybe by mid 2025. Is there any difference between sort of the bank channel and the IMV in terms of rate sensitivity is really one question and the other is what is that level that magic number dash in terms of a 30 year fixed rate that you think just really swings it to the where you're getting the vast majority, 70% of your business in refi versus purchase? Thanks. Speaker 200:53:09Hey, Steve. I'll start this one and Dash can add. I think what we're trying to do with our business is really be less rate sensitive than we've been in the past and have volumes that we feel like are durable in basically any rate environment. I think what that means practically is our bank channel, we'd love to be an ongoing 30 year takeout for banks. I think the hybrid product is a better portfolio product for banks for obvious reasons, just how they're funded and the deposit base. Speaker 200:53:50And so we can be competitive there, but if they lean in on hybrids, it gives us an opportunity to be a 30 year takeout for those guys. And then on the IND front, it's more competitive. We see people, sellers come in and go out. And so there I think, whereas despite the fact that we saw some new entrants buying loans from sellers in Q2 and into Q3, our I and B volume continued to grow. And so I think we're very well situated there. Speaker 200:54:27One thing and Dash can speak to the tenure, But one really interesting thing for us is as tenure comes down, the unrealized losses on these bank back books will potentially reach a point where banks will be comfortable selling or risk transferring or whatever it is. And that starts to get really interesting for us. I mentioned that $1,300,000,000,000 sitting on bank balance sheets. I feel like we're better positioned to take that call than most at this point and that gets really exciting. So there's a lot to like about this business as rates start to come down. Speaker 200:55:11I do think I'll turn it over to DASH. Speaker 900:55:14Yes, you're saying you could see some bulk flow, not just some bulk opportunities off the bank balance sheets when their discount is reduced. Is that what I'm hearing? Speaker 200:55:25Yes, that's what you're hearing. So we're having the conversations all the time and each bank has unique circumstances. But when you look at the makeup of some of these portfolios, the unrealized losses just have not been have been too significant to want to realize candidly. As rates come down and those unrealized losses come down, I think there's a lot of bank executives that would love to clean up some of these portfolios. So that's all the infrastructure work we talked about and building those relationships to get those phone calls. Speaker 300:56:04Steve, in terms of just the tenure directly impacting volumes, I think the I think a rally further rally in the long end to Chris' point probably has the most direct impact on unlocking some of these back books at the banks. Candidly, whether jumbo rates are in the high 6s or the low 7s probably doesn't make a huge difference on refinance activity. As you know, there's those folks have mortgages a couple of 100 bps below that. But similar to the commentary on the resi investor side, I think a lot of it is a sentiment thing. Single family housing has been extremely buoyant and the locks we've seen even with jumbo rates in the low mid-7s, I think reflect consumers that want to enter the housing market and have conviction that now is a good time to invest because they didn't do it a year ago and that was 5 to 7 points ago on HPA. Speaker 300:57:00So they're figuring there's conviction to get in and buy a home. If rates were to rally further into the 6s, I think from a sentiment perspective that probably does a lot for transaction activity. A lot of it is psychological. I think once you get into the 6s a lot of consumers sort of think about that rate as at least in the context of long term historical rates and you probably start to see more come off the sidelines. Obviously, the overlay is supply and the fact that there's still not a lot of housing supply coming out because a lot of people are still sitting on very low coupon mortgages and are less willing to sell and move. Speaker 300:57:40That's why the HEI business is so interesting to us. But I think as rates get into the 6s from a sentiment perspective on purchase money, we think that Speaker 900:57:50will be a tailwind. Thank you for the comment. Operator00:57:56We have reached the end of our question and answer session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you forRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallRedwood Trust Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Redwood Trust Earnings HeadlinesRedwood Reports Q1 Growth Amid Market ChallengesApril 22 at 6:32 AM | tipranks.comRedwood Trust (NYSE:RWT) Given New $7.00 Price Target at Jones TradingApril 20, 2025 | americanbankingnews.com[Action Required] Claim Your FREE IRS Loophole GuideThis shouldn't surprise anyone who's been paying attention, but... Pres. Trump may be about to unleash the biggest "dollar reset" since 1971.April 24, 2025 | Colonial Metals (Ad)Redwood Trust price target lowered to $7.50 from $8 at Citizens JMPApril 17, 2025 | markets.businessinsider.comRedwood Trust price target lowered to $5.50 from $6.50 at JPMorganApril 17, 2025 | markets.businessinsider.com5RWT : Demystifying Redwood Trust: Insights From 6 Analyst ReviewsApril 17, 2025 | benzinga.comSee More Redwood Trust Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Redwood Trust? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Redwood Trust and other key companies, straight to your email. Email Address About Redwood TrustRedwood Trust (NYSE:RWT), together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. The Residential Consumer Mortgage Banking segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also offers derivative financial instruments to manage risks associated with residential loans. The Residential Investor Mortgage Banking segment operates a platform that originates business purpose loans to investors in single-family and multifamily residential properties and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio. The Investment Portfolio segment invests in securities retained from residential consumer and investor securitization activities, and business purpose lending bridge loans, as well as residential mortgage-backed securities issued by third parties, Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations, servicer advance investments, home equity investments, and other housing-related investments. The company is elected to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Redwood Trust, Inc. was incorporated in 1994 and is headquartered in Mill Valley, California.View Redwood Trust ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step InWhy It May Be Time to Buy CrowdStrike Stock Heading Into EarningsCan IBM’s Q1 Earnings Spark a Breakout for the Stock? Upcoming Earnings AbbVie (4/25/2025)AON (4/25/2025)Colgate-Palmolive (4/25/2025)HCA Healthcare (4/25/2025)NatWest Group (4/25/2025)Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Booking (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 12 speakers on the call. Operator00:00:00Good afternoon, and welcome to the Redwood Trust, Inc. 2nd Quarter 2024 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Kaitlyn Martz, Redwood's Head of Investor Relations. Please go ahead, ma'am. Speaker 100:00:15Thank you, operator. Hello, everyone, and thank you for joining us today for our Q2 2024 earnings conference call. With me on today's call are Chris Abate, Chief Executive Officer Dash Robinson, President and Brook Rillo, Chief Financial Officer. Before we begin, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward looking statements. Forward looking statements are based on current expectations, forecasts and assumptions and include risks and uncertainties that could cause actual results to differ materially. Speaker 100:00:46We encourage you to read the company's annual report in Form 10 ks, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward looking statements. On this call, we may also refer to both GAAP and non GAAP financial measures. The non GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non GAAP financial measures are provided in our Q2 Redwood review, which is available on our website, redwoodtrust.com. Also note that the contents on today's conference call contain time sensitive information that are only accurate as of today. Speaker 100:01:24We 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. With that, I'll turn the call over to Chris for opening remarks. Speaker 200:01:38Thanks, Kate, and welcome, everyone, to Redwood's Q2 2024 Earnings Call. As always, I'll kick off our opening remarks before handing it over to Dash and Brooke to cover our operating and financial results. At our March Investor Day, we said that investors in RWT hold the keys to tremendous optionality on the future of housing finance. This statement was meant to reflect our unique strategic positioning in response to anticipated regulatory shifts and the rapid emergence of private credit investors in our sector. Today, after a second consecutive quarter of approximately 50% growth in residential consumer lock volumes, combined with 40% quarterly growth in residential investor loan volumes, validation of that statement is upon us. Speaker 200:02:26Year to date, we have distributed close to $3,500,000,000 of our collateral as investors continue to exhibit strong demand for the residential assets we are uniquely positioned to source and manage. And now, as the Fed finally begins to exhibit signs that its historic tightening cycle is ending, a macro environment to facilitate transformative growth can emerge. Putting it all together, we think the case for Redwood has never been clear. To recap our 2nd quarter results, we improved our operating efficiency on the back of strong volumes, while realizing a 20% reduction in fixed costs. Earnings available for distribution was $0.13 per share, 70% higher than the prior quarter. Speaker 200:03:08Our June 30 GAAP book value $8.73 per share, roughly flat on the quarter, and we estimate book value was up an additional 1% to 2% at July 31. Progress with our bank partners illustrates the core asset liability challenges these institutions still face when funding fixed rate mortgages with deposits. This drives shifts in bank product and portfolio strategies and has further evolved how banks serve their customers. As we continue to focus on forward flow jumbo production with the banks, we now consider the $1,300,000,000,000 of seasoned jumbo loans on bank balance sheets to be an addressable market for us. In fact, in the Q2, approximately 35% of our bank lock volume came from such seasoned portfolios. Speaker 200:03:57All told, our lock volume with banks grew 80% quarter over quarter. On the regulatory front, recent commentary from the Fed also suggests that a re proposal of the Basel III Endgame rules is imminent. Though we are the first to acknowledge that anything can happen in Washington these days, we're encouraged by the early feedback on Christy Goldsmith Romero, who has been nominated to be the new Chair of the FDIC. Goldsmith Romero stated publicly that she is very open to the re proposal of the Basel III Endgame capital requirements and that the agency under her leadership will strive to follow congressional intent concerning a law requiring banking agencies to tailor their capital regulations to bank size. We currently expect to vote in this nomination to occur in September after the Senate returns for a 3 week session beginning the week of September 9. Speaker 200:04:49Turning to our investor loan business. Demand from private credit institutions helped drive the strongest return for our residential investor segment since 2021. As you recall, our recently established partnerships with CPP Investments and Oaktree are indicative of the ongoing demand we have witnessed for residential investor loans. These joint ventures combined with ongoing inroads with whole loan buyers will help evolve the platform's revenues toward recurring and predictable fee streams, facilitating scale with less direct capital usage through time. Looking ahead to the second half of the year, we remain pleased with our market positioning and we'll continue to execute on our strategic goals. Speaker 200:05:31However, we're preparing for unexpected challenges, particularly in light of an already unprecedented presidential election cycle. The rates remain stubbornly high, a data driven Fed now has increasing evidence to commence a more accommodative monetary policy, and we're optimistic on what that could mean for our markets across the residential housing landscape. We look forward to further updating you on our progress as the regulatory, monetary and political changes take shape this fall. And now, I'll turn the call over to Dash to discuss our operating performance in more detail. Speaker 300:06:08Thanks, Chris. 2nd quarter operating performance across our platforms reflected important progress on wallet share, improved efficiencies and continued momentum on distribution. We grew revenues, increased activity with joint ventures, sold term loans to a new strategic investor and maintained our monthly cadence for jumbo loan securitizations. Residential Mortgage Banking's lock volume growth was driven by increased penetration across our seller base, including the 80% quarter over quarter increase in bank volumes that Chris referenced. As seasonality helped nudge overall industry volumes up from the Q1, we estimate our overall 2nd quarter market share in jumbo to be approximately 6%, up from 5% in the Q1. Speaker 300:06:53Activity on the quarter was highlighted by the purchase from a bank of a sizable pool of seasoned hybrid adjustable rate mortgages or ARMs that we expect to settle later in August, an important development that underscores our role as a solutions provider to bank balance sheets. The transaction also represents attractive diversification from our traditional 30 year fixed rate offering, which given banks' traditional footprint in ARM lending may become a growing opportunity for our business. As is often the case when market conditions become more favorable, new players in our space attempt to enter or reemerge, a phenomenon we saw in the Q2 as a handful of issuers pursued market share from independent mortgage bankers or IMBs. This dynamic quickly shifted as securitization spreads began to retrace tightening from earlier in the year. IMBs remain a long standing competitive advantage for our business and in spite of these entrants, we grew IMB lock volume by 10% quarter over quarter. Speaker 300:07:50IMBs represented 50% of quarterly volume and we expect this group to remain a critical focus in driving our overall wallet share higher. Distribution has kept pace with the growth and we priced 3 jumbo securitizations during the quarter while maintaining an active posture on pipeline hedging. This drove gross margins of 72 basis points, just below our historical target range, despite TBA widening and softening in issuance spreads. Already in the Q3, we priced our 7th jumbo securitization of the year, backed by $638,000,000 of collateral and sold $150,000,000 of whole loans to an insurance company. Our residential investor segment also posted impressive upticks Q2, funding $459,000,000 of loans, up 41% from the Q1. Speaker 300:08:40Importantly, origination momentum came from higher margin products where we have prioritized growth. After several quarters of impact from persistently higher rates, term loan volume rose 90% quarter over quarter and was close to half our overall funding mix, key progress given our historical footprint in this product. We also achieved record volume for both single asset bridge and DSCR loans, growing each 50% from the Q1. July fundings for the full business were in line with average monthly volumes for the 2nd quarter. Market demand for our products, most notably from large pools of institutional capital seeking long term partnerships remains a key differentiator for the platform. Speaker 300:09:21We sold $415,000,000 of loans in the 2nd quarter, a high watermark for distribution away from securitization. This included sales to our joint ventures, including the initial funding on the CPP Investments JV and an accretive sale of $240,000,000 in term loans to a large insurance backed buyer. This was a notable transaction and represented a sizable new investor for our loans. Our results reflect the benefits of the partnerships that we have established and looking ahead, we believe the depth of our distribution sets us apart in managing the business to durable profitability. Credit performance in our residential investor portfolio has remained stable overall, but continues to command asset management focus, particularly related to workout activity within our legacy multifamily bridge portfolio, a strategy we largely discontinued in the summer of 2022. Speaker 300:10:13Through the process of stabilizing this portfolio, we have continued to incur incidental workout costs as we progress toward productive resolutions. Given the pace of pay downs and workout activity, we expect this portfolio to continue factoring down in the next 2 to 3 quarters with moderating interest rates potentially accelerating payoff and refinance activity. The 2nd quarter was a recent high point in deployment within our investment portfolio with over $130,000,000 of capital put to work. Investments were generally focused on shorter duration, higher coupon securities from 3rd parties and help drive the growth in net interest income that Brooke will describe in more detail. Fundamentals within our overall $3,400,000,000 investment portfolio continue to perform well, particularly in our jumbo and reperforming loan performance has materially exceeded our model and expectations. Speaker 300:11:04The carrying value of this portfolio has been significantly impacted by the 550 basis point hike in benchmark rates over the past 2 years. As rates stabilize and potentially begin to come down, the book values of our long term fixed rate investments stand to directly benefit. With the overall portfolio still carried at an aggregate $2.18 per share net discount, 65% of which is from our jumbo and reperforming loan securities, This represents a key source of earnings upside that in recent quarters has been hard to unlock. I will now turn the call over to Brooke to discuss our financial results in more detail. Speaker 400:11:41Thank you, Dash. We reported GAAP earnings of $14,000,000 or $0.10 per share for the 2nd quarter compared to $29,000,000 or $0.21 per share in the Q1. Earnings available for distribution or EAD was $19,000,000 or $0.13 per share for the 2nd quarter, up 70% from $11,000,000 or $0.08 per share in the 1st quarter. This resulted in an EAD return on common equity of 6.5% primarily due to growth in net interest income and higher net income contributions from both our mortgage banking platforms. We saw positive fair value changes on our investment portfolio in the 2nd quarter, but performance lagged the Q1 due to higher reserves on our bridge loans. Speaker 400:12:25Our book value per share was $8.73 a slight decrease as compared to $8.78 at March 31. Including our $0.16 common dividend, we delivered an economic return of 1.3%. This brings the year to date total economic return to nearly 5%, which would exceed our dividend yield on book value on an annualized basis, underscoring our ability to deliver a stable to growing book value and consistent dividend despite a volatile market backdrop. Higher volumes and improved operating efficiencies resulted in higher returns across our operating platforms during the quarter. The residential consumer mortgage banking segment delivered a 16% return and the residential investor segment delivered a 13% return adjusting for the amortization of acquisition related intangibles. Speaker 400:13:12Net interest income continued to grow in the 2nd quarter increasing by $1,000,000 to $25,000,000 The roughly $130,000,000 of accretive capital deployment during Q2 contributed roughly $4,000,000 to net interest income. This was somewhat offset by lower net interest income from the Bridge portfolio due to a smaller portfolio size as we saw nearly $400,000,000 of payoffs and $200,000,000 of transfers into joint ventures in the first half of the year. Additionally, loan modifications led to a 10 basis point reduction in our weighted average coupon on the portfolio compared to Q1. We anticipate that continued accretive capital deployment and the resolution of lower yielding legacy Bridge assets will unlock incremental capital for redeployment further optimizing our investment portfolio's net interest income. We benefited from measures taken in recent quarters with general and administrative or G and A expenses decreasing by $1,200,000 from the Q1 primarily due to a 20% reduction in fixed employee compensation. Speaker 400:14:13Given the progress in scaling our volumes, efficiency is also improved in our operating businesses. The cost per loan for residential consumer decreased to 22 basis points from 36 basis points in the 1st quarter driven by bulk activity. With 2 consecutive quarters of 50% growth in lock volume, we anticipate that operating expenses will trend back closer to a 30 to 35 basis point historical target range. We also saw the net cost to originate for residential investor improving to just under 100 basis points in the 2nd quarter, which is also approaching long term efficiency targets for that business. We maintained a robust cash position of $276,000,000 at quarter end effectively unchanged from the Q1 even as we grew the business and deployed accretive capital. Speaker 400:14:57Post quarter end, we retired our 2024 outstanding convertible debt using existing cash on hand, reducing our total convertible debt outstanding to 364,000,000 down 43% year over year. We closed 1 temp securitization and 1 re securitization freeing up approximately $70,000,000 of incremental cash. Pro form a for these activities are July 31 cash and cash equivalents position stood at approximately $275,000,000 dollars We are active on the financing front securing $2,500,000,000 in new or refreshed capacity including $1,000,000,000 to support our joint ventures. These new facilities executed on favorable terms of existing bank partners are expected to support growth of our own production. We added a few new facilities to maintain sufficient runway for our residential consumer pipeline with a $300,000,000 facility that supports our capital light, high capital turn strategy. Speaker 400:15:51Additionally, during the Q2, we drew down $125,000,000 of our CPP investments facility and still have another $125,000,000 remaining under that facility. We also completed an $85,000,000 senior unsecured corporate note offering with a 9% coupon inside our inaugural issue in January providing incrementally accretive capital for deployment. Total recourse leverage was 2.1 times for the 2nd quarter, up from 1.9 times in Q1. The increase was attributable to higher balance inventory partially offset by the conversion of over $200,000,000 of recourse debt secured by bridge loans to longer term non recourse structures. We believe we have sufficient capacity to support the further growth of our operating platforms with $6,100,000,000 in total financing capacity at quarter end, of which $3,800,000,000 was undrawn and available. Speaker 400:16:45Looking forward, we aim to build on the momentum generated in the first half of twenty twenty four. We remain committed to growing market share and deploying capital accretively to grow earnings throughout the remainder of the year. And with that, operator, we will open the line for questions. Operator00:17:00Thank you. We will now be conducting a question and answer Our first question comes from Bose George with KBW. Please proceed with your question. Speaker 500:17:32Hey, everyone. Good morning. Can you talk about the bulk pipeline? And also, can you discuss just the economics of the bulk business? Like was there any financial impact from the acquisitions this quarter? Speaker 500:17:43Or is that when you when it's disposals? Yes, how that differs in any way from the regular flow volume? Speaker 300:17:52Sure, Bose. It's Dash. I can take that. In terms of the prospects for bulk, I think we remain really optimistic that the transaction we talked about that we expect to settle later this month is the first of several. Obviously, those are a little bit more episodic conversations with banks versus our sort of point of sale flow business. Speaker 300:18:14But if you look at the dynamics, number 1 with rates, obviously, with this recent rally, we're getting much closer to a point where dollar prices may make sense for certain banks looking to dispose of seasoned collateral. Obviously, the dynamics with Basel, banks looking to manage overall balance sheet sizes continues to be a dynamic that we see a lot and we think is a tailwind for availability of bulk. So those are all positive tailwinds and oftentimes including this situation that we talked about, it involves being around the hoop with these banks and constant dialogue whether that's being active on the flow side already or simply being in with the C suite of these banks with the decision makers and being the first phone call when they decide to sell those portfolios. So obviously a bulk pipeline looks and feels a little bit different than flow just given how episodic it can be, but we feel like there are a lot of tailwinds, including being able to get one done. There's always a lot of learnings particularly with seasoned portfolios that really matter. Speaker 300:19:18In terms of the economics, I think we are appropriately conservative in terms of how we thought about the economics in the Q2. The pool, as I mentioned, is scheduled to settle later this month. We'll intend to execute that in the Q3. So there's hopefully some incremental upside there. And like we talked about on the call, the fact that it's hybrids, I think is meaningful. Speaker 300:19:41As you know, hybrids are not commonly securitized. They've historically been a bank product. Sometimes they do trade bank to bank or maybe even with insurance companies. But we're really excited to control that production because we think it's differentiated in terms of what the market is buying. And I think also sets us up well to potentially do more hybrids on the run as well. Speaker 500:20:03Okay. So that makes sense. But just in terms of like when you think about your target range of 75 to 100, the bulk doesn't necessarily need to kind of fall there. Is that fair? Speaker 300:20:15It could. I mean, I think for bulk where we're in touch with larger loans and there's less fall pipeline risk to manage. You're right, it could make sense to work for a little bit below that. That's not how we feel like we're working on this portfolio. We felt like with this portfolio we're working within our range. Speaker 300:20:32But you're right, with bulk there are efficiencies and through time it could make sense to work for a little bit less if the capital efficiency is ultimately there. Speaker 500:20:43Okay, great. And then actually just one more on switching to the multi the bridge loan, the delinquency increase. Can you talk about the drivers? Was that on the multifamily sync trends on what drove that? Speaker 300:20:56Sure. So the in terms of the overall trend of the book, it was a modest uptick. It was largely driven by multifamily. We did resolve several of our 90 plus bucket during the Q1. In general that book goes I would say just a few things. Speaker 300:21:15In the Bridge portfolio overall we've continued to see runoff. We had close to a $250,000,000 of payoffs in the Q2. So some of that increase is because we actually do have a smaller portfolio at this point. In general, we're seeing the lending markets open up. We saw a lot of loans refinance out in the Q2 that we were probably less constructive on refinancing. Speaker 300:21:39So you are definitely starting to see flow of funds increase in those markets. So it was definitely a modest uptick, but we resolved a lot in the second quarter and importantly that portfolio remains ring fenced. It's just over 10% of our overall capital at this point and we're continuing to see it factor down. Speaker 500:21:57Okay. Thank you. Operator00:22:02Our next question is from Douglas Harker with UBS. Please proceed with your question. Speaker 600:22:09Thanks. Hoping you could talk a little bit about the decline in revenue margin this quarter. How much of that would you attribute to the competition you mentioned versus kind of the volatility in TBA and securitization spreads? Speaker 200:22:29This is Chris. On margins overall, there's a lot of forces at play. There's a lot of issuance activity that's picked up. A lot of it has to do with the mix of the collateral. But what I would say is, we continue to become more efficient and so we're controlling what we can control. Speaker 200:22:48I do think that we're still projecting historical ranges for margins at 75 to 100 and jumbo for instance. We still like where that sits, mostly because there's pushes and pulls in the market. And as margins go up, you see more competitors, which we have seen very recently. And when there's a glut of supply, deals widen and competitors leave and margins trend back to the range. So I think it's part of the noise of the business, but I still think the historical ranges that we speak to are the right way to think about the economics. Speaker 600:23:36Great. And I apologize if I missed sorry, go ahead Brooke. Speaker 400:23:41No, I was just going to say as a reminder, we were we have been the last the prior two quarters kind of well in excess of our historical gain on sale as primarily securitization spreads were continuing to tighten in on execution. And so for us to be able to generate in and around our historical gain on sale win both AAA spreads to TBAs and TBAs are widening throughout the quarter, we thought we think was pretty well underscore the effectiveness of our hedging regime there. Speaker 600:24:16Great. And apologize if I missed this, but did you give an outlook for either July locked volumes or your outlook for the full quarter? Speaker 200:24:28No, we didn't. Speaker 600:24:32Okay. Thank you. Operator00:24:37Our next question comes from Kristen Love with Piper Sandler. Please proceed with your question. Speaker 700:24:43Thanks. Good morning, everyone. First, can you just talk about the HEI product a little bit, which saw a big pickup in revenues in the quarter. What drove the pickup there? Was it primarily just valuations there? Speaker 700:24:54And also just is HEI an area you're bullish on near term with rates are and how you view the outlook? Speaker 400:25:02Yes, it's a great question. The main driver of those at work, you're correct and then the portfolio in terms of its overall valuation was up, so those were really fair value changes on the portfolio. A lot of what we have in terms of income on that portfolio is almost think about it as like recurring accretion. Those underlying options are struck at a discount to appraised value and so almost act like a bond instrument in certain ways that a lot of our return modest pickup in the a modest pickup in the fair values also from both an improvement in HPA throughout the quarter as well as a small improvement in the forward forecast for HPA as well. Speaker 700:25:57Great. Appreciate that, Brook. And then can you just also just speak to your current thoughts on the dividend? And if you and the Board think you are at the right level at $0.16 when you look at GAAP EAD and then also the rate outlook with the Fed likely to begin cutting in the coming months. And then what you might need to see to get back to covering the dividend with the EAD? Speaker 700:26:19Thanks. Speaker 200:26:21Yes. I'd say high level and Brooke can color commentate. We feel very good about the current level of the dividend and we feel like starting with our March Investor Day, we're tracking towards EAD covering it, the dividend at 16, EAD was 13. I think more importantly though in the big picture, there is the prospect of a rate cut and we talked about the macroeconomic environment for our sector has been very, very challenging in the past few years. As that environment shifts, that should definitely be a tailwind behind us not only in our ability to lower funding costs and generate incremental net interest income, But the book, the portfolio, we have a lot of longer duration fixed rate assets that have been impacted by rising rates over the past few years. Speaker 200:27:21And to see that start to recover, that's another facet of earnings generation on the GAAP side that is quite meaningful and how we think about the dividend going Speaker 700:27:35Yes. Thank you, Dash. Speaker 400:27:39Just to pick up on Chris' comments. One thing to answer the part of your question around just earnings covering the dividend. I think when we put out the Investor Day comments that was really under the backdrop of a higher for longer or kind of more of the same rate backdrop. So a lot of what we laid out was really centered around our capital deployment. We have raised or unlocked a significant amount of capital from the fact that we carried such low recourse leverage in the portfolio. Speaker 400:28:11You saw that tick down again this quarter, so sitting just over a half a turn. When we think about the dry powder that we have to invest to continue to drive NII through accretive capital deployment, we really think about it as about $250,000,000 today. We cited our $275,000,000 of current cash pro form a for the other $125,000,000 or so remaining under CPP. And we have a lot of sources of capital, I think, behind that just in terms of the unencumbered assets that we still carry in our portfolio. As we mentioned in some of our prepared remarks, we are continuing to unlock some of those unencumbered assets through term securitization term securitizations that are pretty accretive and allow us for incremental capital to be redeployed at higher spreads today. Speaker 400:29:06And then furthermore, I think if you to Chris' point on a rate cut, if you look at our the mix, especially with the uptick in residential volume, we have about $1,000,000,000 more of floating rate debt than assets today, because of that fixed rate residential pipeline that we financed with warehouse line debt. That is we see immediate pickup to NIM there. Speaker 700:29:31Great. Thank you. Appreciate taking my questions. All very helpful. Operator00:29:37Our next question comes from Jason Werber with Jones Trading. Please proceed with your question. Speaker 800:29:43Hi, good morning. Thanks for taking my question. Dash, I might have missed your remarks about July, but the jumbo retention rate looked quite a bit higher at 6:30. But with the effect of the securitization subsequently that might be more evened out, is that correct? Speaker 400:29:58Yes, that's right. We've since then done a deal in July. You're seeing so we have about $963,000,000 of loans on balance sheet. You could continue to see that increase just as we continue to gain share and further support growing our volumes. But we are at about a deal a month cadence in the securitization markets right now. Speaker 400:30:20So depending on the timing of those securitizations, you might see that balance fluctuate up and down over quarter end. Speaker 800:30:28Got it. Thank you. Speaker 900:30:29And next I wanted Speaker 800:30:29to ask about HEI as well. Can you talk about the build out of the sort of the sourcing network behind that? Speaker 300:30:38Sure. I can take that one. This is Dash. When we decided to build that business organically a couple of years ago, we felt like we had a couple of main competitive advantages. Number 1 was just the operational infrastructure we have in place with the existing businesses, which is a stark contrast to a lot of the newer players that have come up over the past few years. Speaker 300:31:02But also inherent in that is this sort of wholesale sourcing network, where we can source potential HEI customers from our existing loan sellers or other sort of B2B contexts that a lot of other players aren't doing. The traditional model is more direct to consumer spending a lot of money on marketing to get the word out assessing your pull throughs etcetera. We definitely do a little bit of that. We have a modest spend on direct to consumer. But the real moat for that business from our perspective is the moat we have in other business was just this unique relationship that we have with 200 plus sellers. Speaker 300:31:40We have other relationships with other platforms that are in touch with other groups of consumers that may be interested in HEI. There's a whole emergence of secondary financing with second lean products. As you probably saw Freddie Mac has sort of provisional approval to start purchasing closed in 2nd. So I bring that up because it sort of illustrates the overall momentum in the space and that there's just a whole group of consumers we can unlock on a wholesale basis that we can serve through Aspire, which is the HEI platform. So it's still early days. Speaker 300:32:11We've been very judicious about the spend and the rollout because of just ranking the rate environment and also the relative newness of the product. But we're starting see a lot of momentum in those channels are excited to see what that brings in the second half of the year. Speaker 600:32:26All right. Thank you very much for that color. Operator00:32:32Our next question comes from John Santezza with Wells Fargo. Please proceed with your question. Speaker 600:32:39Yes. Can you talk about, whether or not you think Fed cuts could help some of the bridge loans get further refinanced out and when you think that delinquency rate might peak? Speaker 300:32:52Good question, Don. Thank you. I think there's a few things going on. I think there's the math of an explicit cut. We're certainly floating rate debt burdens will come down if SOFR goes down in the second half of the year. Speaker 300:33:09That's a math equation that will help incrementally. But I think maybe overlay there is just what's happening with the sentiment in the market and the fact that I think the market has much more clarity at this point on potential timing of the Fed cutting and when we're going to go into a more accommodative cycle. And I think we're already seeing that make a difference kind of like I mentioned in response to Bose's question. It's already making a big difference in how capital is flowing in the space. Not only are you seeing the lending markets open up, not only like in conduit land, but also private lenders that were probably more willing to step up and refinance loans today than they were 6 to 9 months ago. Speaker 300:33:53You're seeing a lot of equity on the sidelines start to come off the sidelines in housing finance, where there's again, there's more clarity to what's going on with interest rates, more conviction around investments, things of that nature. And you're also seeing borrowers remain in projects. Like we like we've talked about a lot, we sort of deemphasize that strategy coming up on 2 years ago at this point. And so if you've been in a project for 2, 2.5 years and you've stuck with it, you have much more conviction now frankly than you did 6 to 9 months ago when rates were higher, the markets were harder and there was just less of a path to stabilization with rates and lowering. So I think the math will help incrementally, but I think what really matters most is sentiment and we're starting to see sentiment definitely shift, which we've seen in runoff of our Bridge portfolio, in which we're obviously pleased with. Speaker 600:34:53And so you think the delinquency rate could continue to tick up a little bit, but remain relatively contained? Speaker 300:35:02We have our arms around this portfolio. It's hard to exactly prognosticate the exact direction, but I think what we would expect to see continued pace of resolutions. We are actively engaged with outcomes on the vast majority of our 90 plus bucket at June 30. So we expect that to continue to run off. Being honest, we certainly expect to confront pockets of other issues in the portfolio. Speaker 300:35:25We expect that come up, but we've got the right asset management team in place to deal with it. We've talked a lot in recent quarters about being ahead of the curve with these sponsors, which really matters. And I think you've seen that in the pace of resolutions. So I think we will expect we will continue to see resolutions in the book. Will other stuff come up? Speaker 300:35:43Yes. But we're ahead of the curve on those issues, which I think will help with the expediency of those resolutions. Speaker 800:35:50Thanks. Operator00:35:55Our next question comes from Stephen Laws with Raymond James. Please proceed with your question. Speaker 800:36:00Hi, good morning. I wanted to touch base on NII and JV fees. Brooke, I think you mentioned some payoffs and we're going to as some investment shift see an impact there. Can you talk about the outlook for NII as more assets go into the JVs and kind of how we should see JV fees ramp? And I know in the past you guys have talked about 0.15 sets of annual EAD once that's fully scaled. Speaker 800:36:29Can you give us a timeline given the pace you've seen in the Q2 of how you when you expect those JVs to reach scale? Speaker 400:36:38Sure. I'm happy to start. I think it's a great point to raise on just the timing disconnect between we've historically we have a $100,000,000 of loans paying back to us. Speaker 100:36:52We redeploy that $100,000,000 of loans paying back to us. We redeploy Speaker 400:36:52that $100,000,000 of back right into our investment portfolio and into there might be a small revenue recognition delay between the fees being scaled and the JV combined with our 20% of the C NII piece, it unlocks tremendous amount of capital and that's what my earlier comments were centered around. The $250,000,000 I think is a conservative number for our investable capital today just given our sources of capital. That will more than offset the impact of a smaller bridge portfolio directly on balance sheet, but that would either come from more non interest earning revenue, so more mortgage banking revenue as the capital is redeployed either into our operating businesses or potentially into more third party investments like you saw us do in the Q2. Our capital deployment really generated about $4,000,000 of incremental NII. We did have an uptick in our corporate debt expense to finances, so we will continue see that NII piece grow throughout the Q2. Speaker 400:38:06Just in terms of timing, we did disclose that we put about $120,000,000 of loans into the CPP joint venture. However, that was late in the quarter. We also stood at multiple financing lines. These lines we view to be really accretive terms that are really going to help drive volume for us profitably in that business. And so Q3 is an open road for deployment into those and just given our an overall pickup in the BPL volume that we saw both on the bridge and term side, we should be over the next few quarters ramping quite nicely. Speaker 800:38:50Thanks, Brook. And I want to follow-up on kind of a broader higher level question about the bank relationships. I know over the last year or so, as you guys have really started growing that given the shift in the market, it doesn't just turn on overnight. I know there's a difference in underwriting loans for bank balance sheet versus your exit of securitization. So can you talk about how the maturation of those relationships or seasoning works? Speaker 800:39:16And are things still ramping up? And I think it probably goes to your point earlier about just being around the hoop with conversations with managements about now seeing some bulk purchase opportunities of season loans. But can you talk about how long that usually takes from forming that initial relationship to when you feel like you're really moving at 100 percent as far as capturing the flow and opportunity with those bank sponsors? Speaker 200:39:42Sure, Stephen. I'll take that one. The bank relationship building has been ongoing as you know and we're really pleased with some of the metrics that we're seeing. Certainly, bank volume as a percentage of total lock volume, number of active sellers. I think we're right about fifty-fifty between banks and IMBs and most of that momentum is with the banks today. Speaker 200:40:10So we would expect that to continue to go higher on the bank side. The relationships, the way we think about it is, we continue to be doing infrastructure building with these guys and ultimately this is the first time we've kind of declared that the 1 point $3,000,000,000,000 of jumbo sitting on bank balance sheets is officially an addressable market of ours, which is what we're trying to do. We're trying to build and grow the markets that we can address trade. For years, those were loans that we never saw. And I think that what's really interesting is as these relationships are stood up and as monetary policy shifts, we can buy loans from banks and we've been an avid seller of loans to banks. Speaker 200:40:59So what's most important is the infrastructure building and having these relationships. We sort of approach it through the context of a vendor versus just a capital take out. They invest a lot in the technology and the training. So we think that these are durable relationships. Most of our competition almost all of our competition for loans these days continues to be on the INB side. Speaker 200:41:29The vast majority of securitization activity that picked up right into July were competitors on the INB front. On the bank side, we continue to have great access and most of my personal time these days is spent working with bank executives and advancing these partnerships. So it's really exciting to start to see the work manifest into volume and earnings. And hopefully, all the work that we're doing today and over the past year, year and a half is going to contribute more significantly going forward. So for us, it's full speed ahead with the banking partners. Speaker 800:42:13Great. Appreciate the comments this morning. Operator00:42:18Our next question comes from Eric Hagen with BTIG. Please proceed with your question. Speaker 1000:42:25Hey, thanks. Good morning. A lot covered here already, but one follow-up on Corvest. Is Corvest the direct servicer for all of the loans in its portfolio? And maybe you can share how the servicing functions specifically has kind of evolved in that business as it's grown? Speaker 1000:42:39And how you're maybe managing the cost as just in light of that delinquency pipeline? Speaker 300:42:48Hey, Eric, it's Dash. Thanks for the question. So we for our Bridge portfolio, we are essentially the special services, so we can interact directly with borrowers and sponsors. For both the term and the bridge books, we're not the primary servicer, so we don't do the basic payment collection. We farm that workout to 3rd parties. Speaker 300:43:13In our securitized term portfolio, which as you know is the majority of that book, we those are the transactions. So they are rated primary and special servicers. There is very specific protocols within REMAX for special servicing. We're obviously involved as the owner for the subordinate bonds, but there is a third party name special servicer. Like I said on the bridge portfolio payment collections are done by a third party, but our asset management team is directly engaged with those sponsors as needed. Speaker 1000:43:47Got you. Okay, that's helpful. Hey, so how are you guys thinking about the cash position at this point? How much organic cash do you feel like you're generating kind of like on a quarterly basis? And how are you thinking about the pipeline of unsecured debt coming due just in light of other mortgage finance companies that have taken the opportunity to refinance their debt as well? Speaker 400:44:07Yes. I think we feel really good about our cash and liquidity position today. Pro form a for paying off our converts, we're sitting at the same cash position that we've had for the last couple of quarters and we've put a lot of money to work accretively. The only 2 kind of main recourse financing obligations that we had expecting and then around $350,000,000 or so stepping down to high 200s of maturities of our bridge portfolio over the next number of quarters. That provides a very nice source of capital for us as well as some of the resolution activity that Dash mentioned unlocks accretive capital that we can redeploy at more optimal level than where it sits today. Speaker 400:45:07We also have dry powder from the CVP facility that I mentioned and a pretty good playback for the unencumbered assets that we where we sit today. But as I mentioned in my prepared remarks, our convertible debt is down 43% year over year. We've done a lot of work on the capital structure and raising term non recourse financing. As you probably saw, we moved about $200,000,000 of bridge loans into non recourse non marginable structures. Most of that bridge book is financed today in non marginable non recourse structures. Speaker 400:45:46So we just feel really good overall about both our liquidity position, being able to go on offense and also our liability structure in general. Speaker 1000:45:57Got it. Thank you so much. Operator00:46:02Our next question comes from Rick Shane with JPMorgan. Please proceed with your Speaker 1100:46:09I apologize if some of this has been covered. I'm bouncing between calls this morning. Look, one of the interesting developments we're going to start to face is a pickup in speeds as rates fall. When we think about many of the mortgage REITs we follow where they own instruments at premiums, we're starting to factor that into our models. Historically, Redwood has owned instruments at pretty significant discounts and benefited from a pickup in speeds. Speaker 1100:46:43Can you talk a little bit about that dynamic where the accretable Speaker 700:46:54manifest? Speaker 200:46:57Sure. We can tag team this one, but I think the headline response is the vast majority of well, most REITs, I would say, these days own assets at premiums as you articulated and speeds are probably the biggest threat to those values and eroding the premium. I think for us, we've continued to talk about the fact that our books at a significant net discount. I think it's $0.18 a share of realizable discount. Speeds obviously is an accelerant to that. Speaker 200:47:37So we are definitely from a portfolio perspective in a position where speeds will help significantly. On the On the Run businesses, generally speaking, lower interest rates will help our business. I think we've been positioned for higher for longer as Brook articulated earlier and certainly past the forecast of when rates might come down has moved pretty immensely. I think last quarter, fewer predicting a rate cut even this year and now we're building a consensus towards possibly September. So the macro environment that that could create for us is definitely a tailwind. Speaker 200:48:26And the combination of starting to realize that accretable discount on the book, which again, our portfolio we've talked about multi bridge, which is actually a relatively small piece of our overall book. And as a portfolio, the credit performance of the book has been extremely strong. So when you think about what's going to move it, it's not credit, it's rates. And if you look at the numbers that come down, we'll hopefully start to that will be a contributor at least to GAAP earnings. So that's a big piece and obviously if speeds pick up for the On the Run business that means that there there's more loan activity. Speaker 200:49:12And if there's more loan transactions, there's more regular way business for us as well. So that's definitely something we can manage. I think we continue to kind of fine tune our hedging regimen for our resi business, which is obviously the rate sensitive business. And there we feel really good that we can continue to lock loans and distribute into securitizations as speeds go up. So those are all those are a few things. Speaker 200:49:41But I think overall the headline again Rick is we're positioned I think meaningfully differently than many others in the sector. Speaker 1100:49:50Got it, Chris. And if I could ask one follow-up. Is the takeout from most of your multifamily bridge, the Fannie Freddie multifamily window? And are you starting to see a pickup in activity there even though short rates remain elevated as the tenure comes down? Speaker 300:50:12Hey, Rick, it's Ash. That's definitely a piece of it. So like I said, we made about $250,000,000 of runoff in Bridge in the Q2. A good chunk of that was multifamily. Many of those sponsors do go Fannie Freddie. Speaker 300:50:28And as you know, a 10 year at 4% versus 4.5% is that's a big 50 bp difference in terms of the viability of those loans being taken out in terms of where debt yields are. So obviously this rally particularly with comments yesterday, I think is continuing to support refinances where a lot of loans that maybe didn't work with tens of 4.5 work now. So we're definitely seeing that and the loans we want to recapture into our term book, we're doing that. Like I mentioned a few minutes ago, there are a lot of loans we're happy to see go away and we're also seeing those go away. So I think it's the GSEs. Speaker 300:51:09But as I also mentioned, there's a lot of private lenders that I think are more comfortable coming into the space to take loans out that may not have as clear a path to a GSE takeout, but there's just more there's liquidity flowing a little bit more freely in the system even the way from sort of the Uber institutional takeouts like the GSEs. All of this is a tailwind to pay downs and then things of that nature. But you're right, we're in a pocket of rates where incremental rallies made a lot of difference between loans that work and loans that don't into GSE takeouts. Speaker 1100:51:44Got it. And thank you. And sorry, I sort of had you guys repeat that. Appreciate it. Speaker 300:51:50No. All good, man. Operator00:51:53Our next question comes from Steve Delaney with Citizens JMP Securities. Please proceed with your question. Speaker 900:52:02Thanks. Good morning, everybody. Nice to see you guys are staying busy out there. The just I wanted to pick up on the rate thing too before Rick brought it up. We've had this big rally in the 10 years since late April and about 70 basis points. Speaker 900:52:16I'm just curious if you're already if that 70 basis points or so move and probably get a little more. Are you already seeing any impact on your locks, number 1? And this whole rate phenomenon, this could go on, we could be looking what, 10 year, 3.5%, maybe by mid 2025. Is there any difference between sort of the bank channel and the IMV in terms of rate sensitivity is really one question and the other is what is that level that magic number dash in terms of a 30 year fixed rate that you think just really swings it to the where you're getting the vast majority, 70% of your business in refi versus purchase? Thanks. Speaker 200:53:09Hey, Steve. I'll start this one and Dash can add. I think what we're trying to do with our business is really be less rate sensitive than we've been in the past and have volumes that we feel like are durable in basically any rate environment. I think what that means practically is our bank channel, we'd love to be an ongoing 30 year takeout for banks. I think the hybrid product is a better portfolio product for banks for obvious reasons, just how they're funded and the deposit base. Speaker 200:53:50And so we can be competitive there, but if they lean in on hybrids, it gives us an opportunity to be a 30 year takeout for those guys. And then on the IND front, it's more competitive. We see people, sellers come in and go out. And so there I think, whereas despite the fact that we saw some new entrants buying loans from sellers in Q2 and into Q3, our I and B volume continued to grow. And so I think we're very well situated there. Speaker 200:54:27One thing and Dash can speak to the tenure, But one really interesting thing for us is as tenure comes down, the unrealized losses on these bank back books will potentially reach a point where banks will be comfortable selling or risk transferring or whatever it is. And that starts to get really interesting for us. I mentioned that $1,300,000,000,000 sitting on bank balance sheets. I feel like we're better positioned to take that call than most at this point and that gets really exciting. So there's a lot to like about this business as rates start to come down. Speaker 200:55:11I do think I'll turn it over to DASH. Speaker 900:55:14Yes, you're saying you could see some bulk flow, not just some bulk opportunities off the bank balance sheets when their discount is reduced. Is that what I'm hearing? Speaker 200:55:25Yes, that's what you're hearing. So we're having the conversations all the time and each bank has unique circumstances. But when you look at the makeup of some of these portfolios, the unrealized losses just have not been have been too significant to want to realize candidly. As rates come down and those unrealized losses come down, I think there's a lot of bank executives that would love to clean up some of these portfolios. So that's all the infrastructure work we talked about and building those relationships to get those phone calls. Speaker 300:56:04Steve, in terms of just the tenure directly impacting volumes, I think the I think a rally further rally in the long end to Chris' point probably has the most direct impact on unlocking some of these back books at the banks. Candidly, whether jumbo rates are in the high 6s or the low 7s probably doesn't make a huge difference on refinance activity. As you know, there's those folks have mortgages a couple of 100 bps below that. But similar to the commentary on the resi investor side, I think a lot of it is a sentiment thing. Single family housing has been extremely buoyant and the locks we've seen even with jumbo rates in the low mid-7s, I think reflect consumers that want to enter the housing market and have conviction that now is a good time to invest because they didn't do it a year ago and that was 5 to 7 points ago on HPA. Speaker 300:57:00So they're figuring there's conviction to get in and buy a home. If rates were to rally further into the 6s, I think from a sentiment perspective that probably does a lot for transaction activity. A lot of it is psychological. I think once you get into the 6s a lot of consumers sort of think about that rate as at least in the context of long term historical rates and you probably start to see more come off the sidelines. Obviously, the overlay is supply and the fact that there's still not a lot of housing supply coming out because a lot of people are still sitting on very low coupon mortgages and are less willing to sell and move. Speaker 300:57:40That's why the HEI business is so interesting to us. But I think as rates get into the 6s from a sentiment perspective on purchase money, we think that Speaker 900:57:50will be a tailwind. Thank you for the comment. Operator00:57:56We have reached the end of our question and answer session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you forRead morePowered by