Jason Stewart

Jason Stewart questioned whether the decision to use the ATM for capital raising is solely based on stock price or also considers pro forma ROEs. He also asked how potential government actions, such as increased GSE limits or a standing repo facility, might alter the company's view on MBS spread ranges and future capital raising.

Answer

CEO John Anzalone clarified that ATM decisions combine price to book and the availability of accretive investment opportunities, considering the payback period. CIO Brian Norris added qualitative factors like economies of scale and liquidity. Mr. Norris further explained that while current ROEs are attractive (around 140 bps to SOFR, though tighter recently), increased GSE presence reduces volatility and supports higher leverage. He suggested that increased GSE caps or a significantly faster pace of purchases could lead to a tighter spread regime (10-15 bps tighter).

Jason Stewart followed up on capital raising, asking if the ATM decision is solely based on stock price or also considers pro forma ROEs. He further inquired how potential government actions, such as increased GSE limits or a standing repo facility, might alter the company's view on MBS spread ranges and future capital raising.

Answer

John Anzalone, CEO, clarified that ATM decisions are a combination of price to book and the availability of accretive investment opportunities. Brian Norris, CIO, added qualitative factors like economies of scale and liquidity. Mr. Norris noted that while current levered gross ROEs are attractive (around 140 bps, now 10 bps tighter), the substantial GSE presence helps reduce volatility and supports higher leverage. He suggested that increased GSE caps or a sustained higher pace of purchases could signal a tighter spread regime, potentially reducing spreads by another 10-15 basis points.

Jason Stewart of Janney Montgomery Scott questioned the strategy of managing leverage to mitigate risk rather than increasing it when returns are highest, and asked if the focus has shifted more towards carry versus total return.

Answer

Chief Investment Officer Brian Norris described it as a balancing act, as the widest spreads often coincide with heightened risk and volatility. CEO John Anzalone added that they can gain exposure to wide spreads, like in swaps, without increasing leverage. Norris confirmed the strategy is currently leaning more towards a carry trade, as significant spread tightening seems limited.

Jason Stewart asked for the company's view on the forward rate outlook, specifically regarding recession versus no-recession scenarios, and how that influences the hedge portfolio. He also inquired about the book value impact from ATM issuance.

Answer

CIO Brian Norris responded that there is significant uncertainty in the Fed's policy path, with economists split on future rate cuts. In this environment, IVR's strategy is to remain conservative with its hedge ratio and leverage, keeping the duration gap close to zero. He also confirmed that ATM issuance was executed at attractive levels relative to where capital could be deployed, making it accretive and beneficial for improving the REIT's economics and reducing expenses.

Jason Stewart requested more detail on the company's cautious outlook for Agency Mortgages, asking if it was driven by interest rates or potential GSE reform. He also asked how the view on preferred stock as part of the capital structure has shifted.

Answer

Chief Investment Officer Brian Norris clarified the cautious outlook stems from monetary and fiscal policy uncertainty, not GSE reform risk, which he believes the market is not pricing in. CEO John M. Anzalone explained that the role of preferred stock has not fundamentally shifted, but the company aims to reduce its proportion of the capital structure to around 20%, down from levels set when the portfolio mix was more diverse.

Jason Stewart of Janney Montgomery Scott LLC asked for clarification on the quarter-to-date book value estimate, the macro view on 10-year treasury yields post-election, and the outlook for Fed rate cuts.

Answer

CEO John M. Anzalone clarified the 5.8% quarter-to-date book value decline estimate excludes the dividend. CIO Brian Norris added that while treasury yields may see near-term pressure, lower implied volatility is a positive for agency mortgages. He also noted the firm's view is for 5-6 rate cuts by the end of 2025 and that the steepness of the yield curve is more important than the absolute rate level.

Jason Stewart asked for an expansion on Annaly's opportunistic approach to current coupon MSR and how that market is expected to trade as prepayments increase. He also questioned how much valuations would need to change for current coupon production MSR to meet return hurdles.

Answer

Ken Adler, Head of Mortgage Servicing Rights, explained that Annaly has established infrastructure to be fully active in the current coupon MSR space through Fannie and Freddie MSR exchange platforms, providing daily pricing to nearly 100 counterparties. David Finkelstein, CEO and Co-Chief Investment Officer, added that with expected increased origination, more production coupon MSR will enter the market, and Annaly is comfortable managing this with recapture partners. Adler further clarified that originators prefer to sell lower note rate MSR for liquidity, and the relative value shifts to current coupon MSR as that flow dries up.

Jason Stewart asked about Annaly's strategy for opportunistically acquiring current coupon MSR, considering the existing portfolio's insulation from lower rates and potential changes in prepayment speeds. He also inquired about the valuation changes needed for current coupon production to meet return hurdles.

Answer

Ken Adler, Head of Mortgage Servicing Rights, explained that Annaly has established infrastructure for current coupon MSR through Fannie and Freddie MSR exchange platforms, noting that new production pricing doesn't move much with interest rates. David Finkelstein, CEO and Co-Chief Investment Officer, added that they expect origination to pick up, leading to more production coupon MSR hitting the market, and they are comfortable with recapture partners. Ken Adler further clarified that originators prefer to sell lower note rate MSR, and relative value shifts when that flow dries up.

Jason Stewart of Janney Montgomery Scott LLC asked for an update on expectations for GSE reform and inquired about external factors, such as M&A, that could impact MSR valuation multiples.

Answer

CEO David Finkelstein reiterated that GSE reform is a near-term focus, which could create opportunities in non-core originations. Regarding MSRs, Finkelstein and Head of MSR Ken Adler cited technology-driven servicing cost reductions, strong float income growth, and longer customer retention as key factors supporting current valuations.

Jason Stewart of Janney Montgomery Scott LLC inquired about Annaly's expectations for GSE reform and its potential impact on the credit business. He also asked about external factors, like M&A, that could affect MSR valuation multiples.

Answer

CEO & Co-CIO David Finkelstein stated that he expects GSE reform to be a near-term focus, which could create opportunities to compete for non-core GSE originations. Co-CIO Mike Fania added that Annaly already capitalizes on this by including agency collateral in non-QM transactions. Regarding MSRs, Finkelstein and Head of MSR Ken Adler noted that technological advancements and consolidation are lowering servicing costs, which supports valuations, while growth in float income provides an additional tailwind.

Jason Stewart from Janney Montgomery Scott LLC inquired about Annaly's perspective on GSE reform, the potential for an expanded credit market, and any emerging opportunities, followed by a request for a book value update.

Answer

CEO David Finkelstein stated that significant GSE reform faces high hurdles but anticipates a reduced GSE footprint in non-core products, creating a key opportunity for private capital and Annaly's residential credit business. He then provided a book value update, noting it was up slightly over 2% quarter-to-date, inclusive of the dividend accrual.

Jason Stewart from Janney Montgomery Scott LLC questioned the company's perspective on GSE reform, the potential for an expanded credit market, and any emerging opportunities. He also requested a quarter-to-date book value update.

Answer

CEO David Finkelstein stated that significant GSE reform faces high hurdles but sees a potential silver lining in a reduced GSE footprint for non-core loans, creating opportunities for private capital. He also provided a book value update, noting it was up slightly over 2% quarter-to-date, inclusive of the dividend accrual.

Jason Stewart asked for an update on AGNC's equity issuance activity quarter-to-date and expectations for future ATM issuance, as well as AGNC's take on the evolution of demand for MBS from traditional buyers like banks and foreign investors over the next 12 months.

Answer

Peter Federico stated that AGNC has had no ATM equity issuance quarter-to-date. He clarified that future issuance will be opportunistic, driven solely by economics and value to existing shareholders, as AGNC is comfortable with its current size and scale. Regarding MBS demand, he noted that the supply outlook for 2026 is similar to previous years ($400 billion for the private sector). Beyond GSEs (expected to consume $200 billion), he anticipates strong demand from money managers (due to bond fund inflows, $100-$200 billion), gradual but increasing bank purchases (expecting more than $50 billion due to regulatory changes), stable foreign demand with potential upside, and continued strong REIT demand. He concluded that demand could credibly outpace supply in 2026.

Jason Stewart inquired about AGNC's quarter-to-date equity issuance and expectations for future at-the-market (ATM) issuance, considering 2025's strong ROE profile. He also asked for an outlook on demand from traditional MBS buyers like banks and foreign investors, excluding GSEs, over the next 12 months.

Answer

Peter Federico, President, CEO, and CIO, confirmed no equity issuance quarter-to-date, noting a typical blackout period. He stated that future ATM issuance would be opportunistic, driven by economics and not urgency to grow, as returns still exceed the dividend yield. He projected a diverse MBS investor base for 2026, with strong bond fund inflows, money manager purchases ($100B-$200B), gradual bank growth (over $50B), stable foreign demand with upside, and continued strong REIT demand, potentially leading to demand outpacing supply.

Jason Stewart from Janney Montgomery Scott LLC asked how AGNC is positioning its assets for a 'post steepener' environment and requested an updated book value estimate.

Answer

Peter Federico, President, CEO & CIO, responded that it is too early to position for a 'post steepener' trade, as he expects the yield curve to continue steepening. He noted the current portfolio is already positioned to benefit from this trend. He also reiterated the earlier update that tangible net book value was up approximately 1% for July as of the end of the previous week.

Jason Stewart asked for clarification on any post-quarter-end portfolio changes, the timeframe for the book value update, and the context behind comments on the housing finance system's complexity.

Answer

Peter Federico, President, CEO, and CIO, confirmed no substantial portfolio changes occurred after quarter-end and that the book value update was from March 31. He explained his housing finance comments reflect a growing policymaker appreciation for the current GSE system's importance to affordability, suggesting major disruptive changes are less likely as key decision-makers want to preserve the system's positive attributes.

Jason Stewart requested clarification on the per-share earnings impact from using treasury futures, which are not included in the primary spread metric. He also asked if the financial impact of the ATM issuance timing—raising capital early and deploying it later in the quarter—could be quantified.

Answer

Peter Federico, Director, President and CEO, and Bernice Bell, EVP and CFO, clarified that the imputed carry from treasury hedges contributed approximately $0.04 per share to earnings in the quarter. Regarding the ATM timing, Peter Federico explained that while not providing a precise number, raising capital at accretive levels early in the quarter and deploying it later at wider, more attractive mortgage spreads was a significant benefit to book value.

Jason Stewart of Janney Montgomery Scott asked for an elaboration on the current prepayment environment, particularly the impact of servicing industry capacity. He also requested clarification on how to interpret the MBS spread sensitivity analysis provided in the slide deck.

Answer

Christopher Kuehl, CIO, explained that while the recent refinance response was sharper, it remained slower than during the COVID era, suggesting factors beyond servicer capacity are at play. Peter Federico, President and CEO, clarified that the spread sensitivity disclosure is a portfolio-wide shock analysis and cannot be replicated using a single benchmark. He advised that a more accurate view requires looking at the performance of individual coupons within the portfolio.

Jason Stewart sought clarification on whether the quoted levered returns were carry returns or included potential spread tightening, and how the company is thinking about hedging that book. He also followed up on the corporate development capabilities mentioned in the prepared remarks.

Answer

T.J. Connelly, CIO, confirmed that the mid-teens and high teens ROEs are carry returns, assuming no additional spread tightening. He detailed the hedge book composition, typically 2/3 to 1/3 swaps versus Treasuries, potentially biased more towards swaps (60-80%) due to carry advantages and natural hedging. He noted the curve position is currently more balanced, with less of a steepening bias. Smriti L. Popenoe, Co-CEO and President, reiterated that the recent wide spread environment was unusual, and the current tighter spread environment is a return to a more 'normal' housing finance system, where GSEs can issue debt and grow their balance sheets beyond the stated cap. She also reiterated that corporate development capabilities are about evaluating all types of opportunities to create options for shareholders.

Jason Stewart sought clarification on whether the mid-teens and high-teens levered returns at 7x and 8x leverage are carry returns, and how the hedge book is positioned in that context. He also asked for more details on the corporate development capabilities.

Answer

T.J. Connelly, Chief Investment Officer, confirmed that the quoted ROEs are indeed carry returns, assuming no additional spread tightening. He explained that the hedge book composition is typically two-thirds to one-third swaps versus Treasuries, potentially leaning more towards swaps (60-80%) due to their natural hedging properties and carry benefits. Connelly noted a more balanced curve position currently, moving away from a steepening bias. Smriti L. Popenoe, Co-Chief Executive Officer and President, reiterated that corporate development capabilities are about creating options and strategic flexibility for shareholders by evaluating diverse investment opportunities and balance sheet strategies.

Jason Stewart of Janney Montgomery Scott asked about the hedging strategy, specifically regarding adding longer duration and the choice between treasuries and swaps, and also sought clarity on the G&A expense line.

Answer

CIO T.J. Connelly stated that hedges remain focused on the longer end of the curve to maintain a flat duration profile, and the current mix of roughly two-thirds swaps is a good baseline. CFO & COO Robert Colligan addressed G&A, explaining that expenses are typically higher in the first half of the year and are expected to trend down in Q3 and Q4.

Jason Stewart of Janney Montgomery Scott followed up on the GSE question, asking how Dynex is preparing for potential price action. He also inquired about any markers for accelerated GSE policy, changes to the hedge portfolio, and the strategy for hedging forward rates.

Answer

Co-CEO Smriti Popenoe emphasized that the primary defense against a GSE shock is maintaining liquidity, lower leverage, and a high bar for adding risk, confirming only minor hedge adjustments. Chief Investment Officer Terrence Connelly added that while they consider extending repo duration, they remain mindful of uncertainties like the debt ceiling and use a spectrum of SOFR and swap instruments to hedge.

Jason Stewart asked for the company's view on the potential direction of the GSEs' origination footprint under a new FHFA director and its supply implications for the agency mortgage market. He also requested clarification on the timing of the book value update.

Answer

Co-CEO Smriti Popenoe noted that while ideological biases suggest a smaller GSE footprint, actual policy implementation is what matters. CIO Terrence Connelly added that any policy shift would be a long process with back-and-forth between markets and policymakers. Smriti Popenoe clarified the book value update was as of Friday's close, net of the dividend.

Jason Stewart from Janney Montgomery Scott inquired about how capital allocation might shift in a future rate-easing cycle with a steeper yield curve, specifically questioning the role of the agency MBS portfolio in such an environment and seeking clarification on a previously mentioned loan discount.

Answer

President & CIO Bryan Wulfsohn explained that Lima One originations would remain highly accretive in a steeper curve environment due to high coupons and lower funding costs. He confirmed the agency MBS portfolio is an opportunistic investment and that capital would be redeployed into credit assets if agency spreads tighten. CFO Michael Roper clarified the remaining discount on transitional loans, noting progress had been made but there was 'still some wood to chop.'

Jason Stewart of Janney Montgomery Scott asked about the impact of rate volatility on Lima One's loan demand, competition, and buyer appetite. He also questioned how the agency portfolio is viewed relative to hedges and its potential ultimate size.

Answer

President and CIO Bryan Wulfsohn reported that demand from loan buyers like insurance companies remains strong for Lima One products and the competitive environment is stable. Regarding the agency portfolio, he explained they hedge with SOFR swaps and could see the portfolio grow to $2 billion before reassessing market conditions.

Jason Stewart of Janney Montgomery Scott asked for a breakdown of NewPoint's ROE between its origination and servicing businesses, the marginal ROE on a new CLO, and for data on real-time renewal rates in the multifamily portfolio.

Answer

Jerome Baglien, CFO & COO, noted that a specific ROE breakdown for NewPoint's businesses has not been disclosed. Michael Comparato, President, estimated the marginal ROE on new originations is in the low teens and highlighted that FBRT is uniquely positioned to benefit from a potential decline in SOFR due to high floors on recent loans. He could not provide a specific renewal rate for the multifamily book.

Jason Stewart from Janney Montgomery Scott inquired about the return on equity (ROE) breakdown for NewPoint's segments, the marginal ROE on new CLO executions, and current renewal rates within FBRT's multifamily portfolio.

Answer

Jerome Baglien, CFO & COO, stated that a specific ROE breakdown for NewPoint's business lines is not disclosed. Michael Comparato, President, estimated the marginal ROE on new originations is in the low teens, describing returns as "outstanding on a risk-adjusted basis." He also noted FBRT's unique position to benefit from a decline in SOFR due to high floors on recent originations. Comparato could not provide a specific renewal rate figure for the portfolio.

Jason Stewart from Janney Montgomery Scott requested an estimate of the agency business's revenue contribution after the NewPoint closing and asked for clarity on the specific metrics used to evaluate dividend sustainability.

Answer

CFO Jerome Baglien stated that financial projections for the NewPoint business would be provided in future releases. Regarding the dividend, he explained that management monitors distributable earnings coverage (ex-losses), which was around 90%, and that the key variable is the timing of resolving the REO portfolio to restore earnings. President Michael Comparato added that the REO portfolio holds $0.25 to $0.30 of earnings potential once liquidated and redeployed.

Jason Stewart of Janney Montgomery Scott asked if distributable earnings track taxable earnings closely. He also questioned whether new origination spreads were in line with the assumptions made during the dividend reduction discussions and inquired about the potential through-cycle Return on Equity (ROE) after the company's office exposure is resolved.

Answer

Vice President Jared Lewis confirmed that taxable income and distributable earnings (DE) track closely. President & CIO Thomas Lorenzini stated that recent origination spreads, averaging around SOFR plus 345 basis points, were consistent with their expectations when re-evaluating the dividend. Regarding the through-cycle ROE, Lorenzini responded that he did not have a specific figure to share at the time but was open to an offline discussion.

Jason Stewart from Janney Montgomery Scott asked if distributable earnings track taxable earnings closely. He also questioned whether spreads on new originations were in line with expectations set during the dividend review and inquired about the potential through-cycle Return on Equity (ROE) after the office portfolio is repositioned.

Answer

Vice President Jared Lewis confirmed that taxable income and distributable earnings (DE) track closely. President & CIO Thomas Lorenzini affirmed that recent origination spreads of around 3.45% were consistent with their expectations. Regarding the through-cycle ROE, Mr. Lorenzini stated he did not have a specific figure available but offered to discuss it offline.

Jason Stewart asked for an update on loans with initial maturities in Q2 2025, specifically the Downers Grove property, inquired about the expected return on equity for new originations, and questioned the timing of any potential dividend adjustments.

Answer

Thomas Lorenzini, President and CIO, explained the Downers Grove loan is being extended with a paydown, and that up to $145 million in loans could repay in Q2 or early Q3. Jared Lewis, Vice President, indicated new investments are targeting low-teens ROEs. Matthew Brown, CFO and Treasurer, stated the board evaluates the dividend quarterly, considering headwinds from lower spreads on new loans replacing higher-spread maturing loans.

Jason Stewart asked about the impact of recent interest rate volatility on borrower confidence and transaction activity. He also sought a big-picture view on what needs to change for the office portfolio's situation to improve, and requested a repeat of the rationale for the increased CECL reserve.

Answer

Thomas Lorenzini, President and Chief Investment Officer, explained that treasury volatility has made floating-rate loans more attractive to borrowers, which benefits their business. He suggested the office market has likely bottomed and needs time, cap rate compression, and the return of institutional equity to see improvement. Fernando Diaz, Chief Financial Officer, reiterated that the CECL reserve increase was driven by unfavorable CRE pricing forecasts and increased provisions for their office loans.

Jason Stewart of Janney Montgomery Scott LLC followed up on the topic of originations, asking if there was any intent to retain principal-only securities (POs) as production ramps. He also questioned if there was a broader strategic thought behind shifting the balance sheet from primarily agency securities to private label credit.

Answer

William Greenberg, President & CEO, confirmed that retaining certain assets like POs is a possibility they are evaluating as they grow their origination products and outlets. He clarified that while they may add other asset classes for diversification, the portfolio would remain primarily focused on Agency RMBS and would not shift to be primarily non-agency or private label credit.

Jason Stewart of Janney Montgomery Scott LLC asked for the company's outlook on prepayment speeds and how factors like float income and recapture value are influencing MSR transaction multiples.

Answer

Chief Investment Officer Nicholas Letica projected a short-term uptick in prepayments followed by a decline due to rate reversals and seasonality. President and CEO Bill Greenberg noted that MSR supply is normalizing and that multiples are being influenced by forward short-term rates, recapture value expectations, and a steepening yield curve, resulting in small overall changes. Letica added that TWO's MSR price sensitivity is more tied to float income than prepayments due to its low WACC.

Jason Stewart of Janney Montgomery Scott sought clarification on the share issuance price relative to book value and asked for help reconciling the high-teens ROE potential with the current dividend yield, particularly concerning tax versus economic returns.

Answer

Robert Cauley, Chairman, President & CEO, explained that while Q2 issuance was at a slight discount, the net issuance for the first half of 2025 was approximately 99.5% of book value. He detailed that the dividend is driven by taxable income, which is affected by tax laws requiring gains from closed hedges to be amortized over the hedge's life. This creates a non-cash adjustment to interest expense. He noted this effect is diluting as the company grows and that taxable income projections for the year are aligned with the dividend distribution.

Jason Stewart inquired about the current gross ROE after recent portfolio changes and questioned the economic rationale for raising capital versus the dividend payout, also asking about the expected taxability of the 2025 dividend.

Answer

Executive Robert Cauley and CIO/CFO George Haas responded. Cauley estimated the gross ROE versus swaps is very high, potentially in the low 20s. Regarding capital, they explained that while buybacks were accretive at lower stock prices, the current price near book value makes capital raises a consideration for liquidity. Cauley detailed how the dividend is based on taxable income, which includes amortized gains from prior closed hedges, making new investments economically attractive. They declined to forecast the 2025 dividend's taxability but noted the current taxable income is covering the distribution.

Jason Stewart asked about the forward-looking Return on Equity (ROE), the discount to book for Q4's ATM issuance, and the strategy for balancing the high dividend yield against book value preservation, especially compared to peers.

Answer

Executive Robert Cauley and CIO George Haas explained that ROEs on new capital are in the mid-teens (~16%), driven by a ~200 basis point spread on higher-coupon assets with ~7x leverage. They stated the dividend was 96% covered by taxable income for the year, with the trend improving into Q4, making them comfortable with its sustainability. While not providing a specific ATM discount for Q4, they noted issuance was minimal and typically done near book value. They believe the stock is undervalued and should trade at a premium, which would support book value.

Jason Stewart sought clarification on current repo funding costs versus the quarterly average, asked about marginal return on equity (ROE) levels relative to the dividend, and questioned how the board weighs retaining capital to build book value against paying a high dividend.

Answer

Executive Robert Cauley clarified that the reported average repo cost was skewed high by portfolio growth timing and that actual funding costs have decreased. Executive George Haas noted marginal ROEs are in the high teens. Regarding capital allocation, Cauley explained the board has discussed retaining capital but believes the market doesn't typically reward it, though it remains a consideration, especially in a rising rate environment.

Jason Stewart inquired about the composition of Rhythm Property Trust's near-term investment pipeline and sought clarification on what constitutes an "opportunistic" investment beyond commercial real estate.

Answer

Michael Nierenberg, Chairman, President & CEO, detailed that the pipeline includes retail assets, multifamily properties, and office opportunities. He also mentioned potential large-scale M&A deals. Regarding "opportunistic" investments, Nierenberg explained that while the immediate focus is on commercial real estate, the company could explore other areas, citing a past consumer loan investment at Fortress as an example of a non-CRE opportunistic play.

Jason Stewart asked how recent market volatility has impacted seller motivation and deal activity, and whether the company's focus on diversification signals a shift away from pursuing a transformative platform acquisition.

Answer

Michael Nierenberg, Chairman, CEO, and President, acknowledged that volatility has led to wider spreads but noted recent stability has created more opportunities. He emphasized that the company will remain cautious, citing challenges in the office market. Nierenberg clarified that the diversification strategy is consistent with their long-term plan and that they are still actively seeking transformative acquisitions of platforms or origination businesses.

Jason Stewart of Janney Montgomery Scott LLC asked how the company balances total return versus carry in its portfolio construction, given dislocations between swaps and treasuries, and also inquired about the pricing of the recent ATM stock issuance relative to book value.

Answer

Co-CIOs Desmond Macauley and Sergey Losyev explained they are positioned for a bullish steepener and favor production coupons for their high ROE. They balance cheaper swap hedges with more effective treasury hedges. CFO Gordon Harper added that the quarter-to-date ATM issuance was only 'mildly dilutive' to book value.

Jason Stewart of Janney Montgomery Scott asked for more detail on GSE reform, specifically how much risk is priced into the mortgage basis, the potential magnitude of spread widening, and how ARMOUR would position its portfolio for that risk.

Answer

CEO Scott Ulm opined that very little GSE reform risk is currently priced into the market. He acknowledged that a full privatization could imply significant spread widening but considers it an unlikely scenario. Sergey Losyev added that Ginnie/Fannie swaps have not reacted to reform headlines, suggesting the market expects a gradual path to exit conservatorship rather than an abrupt change.

Asked about the financial health of their partner, Vantage, given lower sale profitability; requested an update on gross ROEs for the MRB and GIL business; and inquired about the specifics of the Helotes bond investment, including the percentage of the issuance purchased and the expected ROE.

Answer

The executive explained that their partner Vantage's business model includes developer fees, not just gain-on-sale, so their interests remain aligned. ROEs on the MRB and GIL business are expected to be stable due to their hedging program. For the Helotes transaction, they purchased about 15% of the senior bonds and 50% of the subordinate bonds, with gross coupons of 6.25% and 8% respectively. A final ROE could not be provided as leverage terms were not yet finalized.

Inquired about how recent interest rate volatility has affected demand for the company's loans and asked for an expanded view on the strategy for market-rate multifamily development, given the slowdown in sales activity.

Answer

The executive stated that rate volatility has not significantly impacted demand for their core governmental issuer loans and mortgage revenue bonds, as sponsors still need to complete their projects. On the market-rate side, they are being more selective but believe that starting new projects now, while others are challenged, will create a favorable position for exits in 3 to 5 years when new supply may be limited.

Jason Stewart asked how recent interest rate volatility has affected demand for GHI's loan products and requested an expansion on the firm's commitment to its market-rate multifamily development strategy given the slowdown in property sales.

Answer

CEO Kenneth Rogozinski responded that rate volatility has not significantly impacted demand for their core governmental issuer loans and mortgage revenue bonds, as sponsors still need to execute on their allocations. He affirmed GHI's continued commitment to the market-rate merchant build strategy, stating that while they are being more selective, starting projects now should create a competitive advantage for exits in 3 to 5 years when new supply may be limited.

Jason Stewart from Janney Montgomery Scott requested a quarter-to-date book value update, clarification on the swap portfolio's roll-off schedule, and insights into whether builder buydowns are creating investment opportunities in specific mortgage pools.

Answer

Executive Michael Hutchby provided a book value update, noting NAV was down approximately 3.7% as of April-end, translating to a 7% decline in book value per share before dividends. He also confirmed a $250 million swap roll-off in Q1 with no significant maturities remaining in 2025. Executive Julian Evans added that while the company observes builder buydowns, it is not a strategic focus, preferring to maintain modest pay-ups and concentrate on traditional loan balance stories.

Jason Stewart of Janney Montgomery Scott inquired about the outlook for prepayment speeds, the potential for a refinancing wave, where the company sees value in specified pools, and the current return on equity (ROE) for the blended portfolio.

Answer

Executive Jeffrey Lown noted the MSR portfolio has significant runway before speeds are impacted. Executive Julian Evans estimated that mortgage rates would need to fall to the 5.7%-5.8% range to trigger a significant refinancing wave. Executive Michael Hutchby detailed the strategy in specified pools, focusing on near-par securities and loan balance stories. Finally, Julian Evans estimated ROEs on new investments to be around 14-17% for RMBS and in the low teens for MSRs.

Jason Stewart of Janney followed up on credit quality, asking about performance by vintage in Q4 and if there were any signs of deteriorating roll rates. He also inquired about credit performance trends quarter-to-date, accounting for seasonality.

Answer

Chief Financial Officer Brandon Filson reported no significant negative trends by vintage, aside from a slight, expected uptick in delinquencies for recent 2024 originations. He noted that performance had improved slightly quarter-to-date, with delinquency levels as of January having decreased by about 10 basis points from the 2.4% reported at year-end.

Jason Stewart from Janney Montgomery Scott asked for an overview of gross ROEs by strategy, specifically for Agency RMBS and BPLs. He also inquired about capital allocation shifts in response to agency spread volatility and the broader impact of rate volatility on CRE deal flow.

Answer

CEO Jason Serrano and President Nicholas Mah responded. Serrano detailed the gross ROEs: 20-plus percent for BPL bridge loans, mid-teens for Agency RMBS, and mid-to-high teens for BPL rental loans. He added that capital allocation to agencies is market-driven, with activity increasing as spreads widen. Mah noted that rate volatility has slowed CRE deal activity, which he expects to remain muted for the rest of the year before potentially rebounding in early 2025.

Asked about the nature of future 'opportunistic' investments, the company's appetite for distressed assets, and any specific near-term focus for senior loan investments by geography or asset class.

Answer

'Opportunistic' investments could include a wide range of opportunities, including M&A, and will be tied to raising new equity for accretive deals. The company is very willing to acquire distressed assets, as it's part of their DNA. Near-term, the focus is on liquid AAA CMBS, but they will consider any asset class or geography that offers good risk-adjusted returns.