Don Fandetti

Don Fandetti asked about the growth prospects of the Aspire non-QM market and whether a shrinking GSE footprint could further boost this segment.

Answer

President Dash Robinson explained that the non-QM market has significant organic growth runway due to the increasing number of consumers with non-traditional income and greater awareness among originators. He highlighted the role of technology, particularly AI, in improving underwriting efficiency and noted that DSCR loans (smaller balanced rental loans) comprise about 40% of Aspire's volume, benefiting from growing rentership. Dash Robinson added that while a GSE footprint reduction would benefit all Redwood businesses, especially Sequoia, the Aspire TAM is growing for independent reasons.

Don Fandetti asked about Blackstone Mortgage Trust's observations on office market fundamentals, particularly in light of recent loan upgrades, and whether the company might be over-reserved in its office book. He also inquired about the outlook for credit migration from category three to four.

Answer

Austin Peña, EVP of Investments, confirmed stability and improvement in office fundamentals, citing leasing activity and increased transaction volumes, and stated that reserve levels are appropriate based on detailed asset-by-asset analysis. Tim Johnson, Chair of the Expertise Board and Global Head of BREDS, added that the direction of credit travel is clearly positive with no new impairments, and the company has resolved 70% of its impaired loans with good visibility on further resolutions.

Don Fandetti with Wells Fargo asked about Blackstone Mortgage Trust's observations on office market fundamentals, specifically noting six loan upgrades, and whether the company might be over-reserved in its office loan book. He also inquired about the near-term outlook for credit migration, particularly movements from category three to four, and if the company believes it is in a steady state regarding credit performance.

Answer

Austin Peña, EVP of Investments, confirmed seeing stability and improvement across the office sector, driven by leasing activity, which led to six office loan upgrades and two removals from the watchlist. He noted increasing transaction activity and capital returning to the sector. He stated that the company's reserve levels are appropriate, based on a detailed asset-by-asset analysis. Tim Johnson, Chairman and Incoming CEO, affirmed that the direction of credit is clearly positive with no new impairments, and the company has resolved 70% of its impaired loans with good visibility on further resolutions, indicating confidence in the overall credit performance path.

Don Fandetti asked if the recent credit and ABS market volatility would impact gain on sale margins for Q4-Q1 production, and if the 7% margin achieved this quarter could be considered a good base-level run rate.

Answer

CFO Pete Graham explained that gain on sale margins vary with different phases in the market cycle, noting that successful loan sales have historically ranged in the mid-to-high single digits. He stated that margins are primarily tied to general market spreads at the time of execution and can also be influenced by the purchaser's intended leverage takeout structure.

Don Fandetti asked about the potential impact of recent credit and ABS market volatility on gain on sale margins for Q4-Q1 production, and whether the 7% margin achieved this quarter could serve as a reliable base-level run rate.

Answer

CFO Pete Graham explained that gain on sale margins fluctuate with market spreads and the implied structure used by purchasers, noting that historical sales have typically fallen within a mid to high single-digit range, with some variability.

Don Fandetti asked about potential portfolio acquisitions or new de novo programs, and whether the Versatile Credit acquisition is a one-off or indicative of more bolt-on technology acquisitions.

Answer

Brian Doubles (President and CEO) noted a strong pipeline across all platforms, including existing portfolios and de novo opportunities, emphasizing disciplined pricing and winning based on capabilities. He described Versatile Credit as a great, relatively small acquisition that leverages Synchrony's scale to drive higher approval rates and non-lending revenue, fitting the type of acquisition they seek. Brian Wenzel (EVP and CFO) added that Versatile Credit has attractive IRR/ROIC and a reasonable payback on tangible book value.