Release Date: February 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q: Can you talk about incremental ROEs and what you see as the normalized ROE, given the current rate environment? A: Jack Macdowell, Chief Investment Officer, stated that their target return on invested assets is in the mid-teens area. They are focusing on areas like MSRs and RTLs that meet these return targets. The timeline for achieving a double-digit net ROE depends on market conditions and the ability to reinvest into higher-yielding assets.
Q: Can you discuss the book value roll forward this quarter and the drivers of the change? A: Jack Macdowell explained that the book value change was driven by the steepening of the yield curve in December, which had a disproportionate impact on the value of loans relative to securitized debt. This was seen as an anomaly, with the overall change in value for the year being minimal.
Q: Can you talk about the potential to add MSR and other hedges to dampen book value volatility? A: Jack Macdowell mentioned that their strategy focuses on buying residential loans and securitizing them in nonrecourse term financing structures. They accept book value volatility but see MSRs as a portfolio construction element to stabilize book value without diluting earnings.
Q: Did you receive a margin call during the quarter due to the increase in interest rates, and how much liquidity was posted? A: Phillip Kardis, CEO, confirmed that they received some margin calls, but they were immaterial and not significant.
Q: Can you elaborate on the types of MSRs you are considering and the capital allocation for this asset class? A: Jack Macdowell stated that they are focused on making purposeful allocations within the portfolio, including MSRs. They are looking at both current and lower coupon MSRs for their relative value and duration offset benefits, but the exact capital allocation will depend on market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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