PMT - NYSE

Good afternoon, and welcome to the Second Quarter Discussion for PennyMac Mortgage Investment Trust. The slides that accompany this discussion are available on our website at pmt.pennymac.com. Before we begin, let me remind you that our discussion contains forward-looking statements that are subject to the risks identified on Slide 2 that could cause our actual results to differ materially. Now I’d like to turn the call over to David Spector, PMT’s Chairman and Chief Executive Officer, who will discuss the company’s second quarter 2023 results.

Thank you, Isaac. PMT had a solid second quarter in 2023, as strong performance from its credit sensitive strategies and income excluding the impacts of market driven value changes were partially offset by fair value declines in its interest rate sensitive strategies and related tax impacts. Net income to common shareholders was $14 million, or $0.16 per common share, with an annualized return on equity of 4%. Book value per share, net of the $0.40 dividend, decreased slightly to $15.81. PMT spent $19 million on share repurchase during the second quarter, and it remains an attractive use of capital when PMT’s share price is well below book value per share. Dan will provide additional details on PMT’s financial performance later on in this discussion. With mortgage rates currently near 7%, the most recent third-party forecasts for 2023 originations range from $1.6 trillion to $1.8 trillion, still well below normalized levels. While industry origination volume in the second quarter was meaningfully higher than the first quarter, higher mortgage rates are driving borrowers to remain in their homes, leading to low inventory levels and continued home price appreciation. Unit originations in 2023 are projected to total just 5 million, the lowest level since 1990, indicating the potential for industry consolidation if market conditions persist. While 2024 originations are expected to approach $2 trillion, we expect the competitive environment to continue given unit origination volume will likely remain constrained. Given the current market environment, we believe that mortgage REITs like PMT, with diversified investment portfolios, efficient cost structures and strong risk management practices, are best positioned to manage through the volatility presented by the current market environment. Throughout 2023, credit spreads have tightened and we have observed improvements in the structured product markets, which has driven additional capital deployment into opportunistic investments. This quarter, PMT invested $94 million into such opportunistic investments. Additionally, we continue to monitor opportunities to purchase bulk MSR packages with lower note rates and projected prepayment speeds that align with PMT’s investment objectives. After quarter end PMT entered into an agreement to acquire a bulk MSR portfolio totaling $1.4 billion in UPB. Our lender risk share investments remain strong, consisting of seasoned loans with low loan-to-value ratios that have benefitted from recent home price appreciation. Delinquency rates are at pre-COVID levels, and combined with low unemployment, realized losses on our CRT investments are expected to remain limited. Looking forward, the return potential of PMT’s organically created investments in GSE CRT decreased slightly from the prior quarter due to tighter credit spreads. In the interest rate sensitive strategies, we believe the Federal Reserve is approaching the end of its tightening cycle and interest rate volatility has declined meaningfully from peak levels earlier this year. As a result, hedge costs declined significantly throughout the quarter. Absent a meaningful increase in volatility, hedge costs are expected to remain low in future periods, which should lead to more consistent performance for the interest rate sensitive strategies. Additionally, higher short-term rates and custodial deposit balances from seasonal lows in the first quarter have resulted in increased placement fee income, and we anticipate these strong contributions to continue throughout 2023. With the support of PFSI’s industry-leading servicing capabilities and proprietary technology, we are confident in the long-term performance of PMT’s MSR portfolio. Our expectations for potential returns from the interest rate sensitive strategies over the near term has decreased, however, due to the expectation that short term rates remain higher for longer, driving projected financing costs closer to our expected asset returns over the next few quarters. Turning to correspondent production, PennyMac has many strong relationships with purchase-focused mortgage companies. Throughout the quarter, we increased the number of approved correspondent seller relationships to 800, driven by a strategic effort to add sellers who previously maintained a relationship with commercial banks that have pulled back from or recently exited the channel. Over the past 12 months, we estimate that we represented approximately 19% of the correspondent channel overall, maintaining our leadership position with more than double the share of the next largest channel participant. As noted last quarter, the proportion of conventional loans acquired by PMT and subsequently sold to PFSI increased meaningfully, as we continue to leverage the synergistic relationship between the two companies. This enables PMT to maintain its leadership position in the correspondent channel while actively managing its equity allocation across credit and interest rate sensitive strategies. We expect these loan sales to continue in the third quarter. Projected returns for correspondent production are higher than levels achieved in recent periods as GSE pricing changes without pipeline protection negatively impacted recent results. Slide 7 of our second quarter earnings presentation illustrates the run-rate return potential from PMT’s investment strategies, representing the average annualized return and quarterly earnings potential that PMT expects over the next four quarters. Driven by current sentiment for rates to stay higher for longer, we expect the quarterly run-rate return for PMT’s strategies to average $0.30 per share or an 8% annualized return on common equity. Now I’d like to turn the call over to Dan, who will review the drivers of PMT’s second quarter financial results.

Thank you, David. PMT reports results through four segments: Credit Sensitive Strategies, which contributed $71.1 million in pretax income; Interest Rate Sensitive Strategies, which contributed $13.2 million in pretax loss; correspondent production, which contributed $1.4 million in pRETAX income in the Corporate segment, which had a pretax loss of $12.5 million. PMT also recorded an income tax expense of $22.2 million. During the quarter, PMT repurchased 1.6 million shares of common stock for $19 million at an average price of $11.87, significantly below current book value per share. Let’s discuss PMT’s credit sensitive strategies, which primarily consist of investments in organically-created CRT, non-agency subordinate bonds from private-label securitizations of PMT’s production, and opportunistic investments in GSE CRT. Income from PMT’s organically-created CRT investments this quarter totaled $57.8 million. This amount included $43 million in market-driven fair value gains, reflecting the impact of tighter credit spreads. Gains on PMT’s organically-created CRT investments also included $17.9 million in realized gains and carry, $500,000 in realized losses, $15.8 million in interest income on cash deposits, and $18.4 million of financing expenses. The fair value of these investments increased slightly from the prior quarter to $1.2 billion, as increases from fair value gains more than offset declines from prepayments. As David mentioned, the outlook for our current investments in organically created CRT remains favorable, with an underlying current weighted average loan-to-value ratio of 52%. The 60-plus day delinquency rate for these investments decreased slightly to 1.12% at June 30th from 1.18% at March 31st. As David mentioned earlier, we invested $94 million into additional opportunistic investments throughout the second quarter. This included $52 million into GSE CRT bonds in the credit sensitive strategies, and an additional $42 million into fixed-rate bonds from recently completed jumbo securitizations in the interest rate sensitive strategies. We will continue closely evaluating potential opportunities like these across the mortgage landscape. PMT’s interest rate sensitive strategies consist of our investments in MSRs sourced from our correspondent production and investments in Agency MBS, non-Agency senior MBS, and interest rate derivatives with offsetting interest rate exposure. The interest rate sensitive strategies contributed a pretax loss of $13.2 million in the quarter. As you can see on Slide 12 of our second quarter earnings presentation, MSR fair values, before recognition of realization of cash flows, increased by $15 million. Net fair value losses on Agency MBS, interest rate hedges and the related tax impacts were $65 million. PMT reported an income tax expense of $22 million primarily due to fair value increases on MSRs and interest rate hedges, which are held in PMT’s taxable subsidiary. The fair value of PMT’s MSR investments at the end of the second quarter was $4 billion, essentially unchanged from the end of the prior quarter, as new investments and fair value gains were offset by runoff from prepayments. The UPB of loans underlying PMT’s MSR investments was also essentially unchanged as new production volumes were offset by payoffs. Delinquency rates for borrowers underlying PMT’s MSR portfolio remain low, consistent with our expectations for a conventional loan portfolio in a normalized environment. Servicing advances outstanding for PMT’s MSR portfolio decreased to $94 million at June 30th from $121 million at March 31st. No principal and interest advances are currently outstanding, as prepayment activity continues to sufficiently cover remittance obligations. PMT’s Correspondent Production segment contributed $1.4 million of pretax income for the quarter. These results include a negative impact of $4.5 million, caused by changes in GSE pricing that did not come with pipeline protection as they historically have. Segment pretax income as a percentage of interest rate lock commitments was 4 basis points, up from last quarter, and the weighted average fulfillment rate was 18 basis points, unchanged from the prior quarter. Correspondent loan acquisition volume was $21 billion in the second quarter, up 5% from the prior quarter. 53% were government loans and 47% were conventional loans. Purchase volume was 93% of total acquisitions. Conventional loans acquired for PMT’s account totaled $3 billion, down 54% from the prior quarter due to the increased sale of conventional loans to PFSI. Total correspondent fundings for the month of July for both PMT and PFSI are estimated to be $5.9 billion and locks are estimated to be $6.4 billion. PMT’s Corporate segment includes interest income from cash and short-term investments, management fees and corporate expenses. The segment incurred a pretax loss of $12.5 million for the quarter. PMT reported $25 million of net income across its strategies, excluding market-driven value changes and the related tax impacts. A key driver of PMT’s long-term success and solid performance relative to peers has been the innovative financing structures we have in place to finance MSR and CRT assets. In the interest rate sensitive strategies, this quarter we issued a new 5-year, $155 million term loan secured by Fannie Mae MSRs. In the credit sensitive strategies, we issued $235 million of new two-year CRT term notes to finance the CRT investments previously financed with securities repurchase agreements; and we also extended the CRT term note originally due in May of 2023 for two years. As a reminder, these CRT term notes do not contain margin call provisions, mitigating cash exposure risks associated with fluctuation in market values. With that, I’ll return the discussion to David for some closing remarks.

Thanks, Dan. We continue to believe PMT’s strong balance sheet and seasoned investment portfolio with strong underlying fundamentals will drive improved performance over the long term. We encourage investors to join us today at 5:45 Eastern Time for our live question and answer session. The webcast will be available at pmt.pennymac.com. For any additional questions, please contact our Investor Relations team by email or phone. Thank you.

This concludes PennyMac Mortgage Investment Trust’s second quarter earnings discussion. For any questions, please visit our website at pmt.pennymac.com, or call our Investor Relations department at 818-224-7028. Thank you.

Thank you, operator.

Good afternoon.

Sorry.

Good afternoon and welcome to PennyMac Mortgage Investment Trust second quarter 2023 live earnings Q&A session. Additional earnings materials are available on PennyMac Mortgage Investment Trust website at pmt.pennymac.com. Before we begin, let me remind you that this Q&A session may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially. I would like to remind everyone, we will only take questions related to PennyMac Mortgage Investment Trust, or PMT. The replay of the live Q&A session for PennyMac Financial Services Incorporated, or PFSI, will be available shortly on pfsi.pennymac.com. [Operator Instructions] Now I'd like to introduce David Spector, PennyMac Mortgage Investment Trust, Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust's Chief Financial Officer. Please go ahead.

Thanks, operator, and welcome, everybody, to PennyMac Mortgage Investment Trust first live earnings Q&A session. As you all know, historically, we've not done a live earnings call. But we believe strongly in the continued evolution of our strong and accessible Investor Relations process, and that now is an appropriate time to introduce a light element into our earnings process. I believe these Q&A sessions will give stakeholders increased transparency into our business in a timely manner. And although we are introducing a live call, you can rest assured that we and I will maintain our ongoing commitment to investors and analysts via conferences, non-deal roadshows, phone calls and other industry events. Now we'd like to begin taking questions. Operator?

[Operator Instructions] We'll now take our first question from the line of Kevin Barker with Piper Jaffray.

Like to – thanks for doing this call. I really appreciate it. I think it's really helpful. Also, I'd like to dig in a little bit on the correspondent production has declined significantly here. I know you saw strategies last year and how you're splitting that between PennyMac Financial and PMT. Could you just talk about the reasoning for the significant drop and if you expect to keep that production and fairly low on a go-forward basis? Thanks.

Yes. So look, I think that the – you're right, Kevin. There's a lot that went into the correspondent production story for the quarter. The big one, as you pointed out, was the sale -- increased sale of conventional loans from PMT to PFSI. That was 38% of the total conventional production in the first quarter, jumping all the way to 70% in the third quarter. I think that, at least for this quarter, I would expect similar levels, and I would suspect it will stay that way for at least a few quarters after depending on the capital position of PMT and if it raises more capital. Look, it's a capital allocation decision for PMT. We were very heavily weighted to MSR and our interest rate strategies, and we decided that we wanted to opportunistically deploy capital into credit investments that came up in the market to bring that more in line. And so I would – I think that we did a great job of hitting on that initiative, and I think we've opportunistically added to the credit investment strategies. On the margin side, look, I think in PMT, it's an interesting story for this quarter. Because I think – I know margins would have been higher at PMT, not seeing a $4.5 million impact on profitability from unannounced GSE pricing changes. And these pricing changes affected PMT in an unfortunate way, and the fact that it had inventory that on its balance sheet at the end of the first quarter when we sold less loans to PFSI versus in the second quarter. So I think we saw that. And as we – in addition, we saw some other changes that the GSE is presented to us about any pipeline protection or inventory protection. So it got all that added up to the $4.5 million hit. We've made changes to our pricing methodology to risk manage that. But I think that's the margin story, I think that as it pertains to the PMT correspondent business. And look, we're in a really strong competitive position in correspondent. I think it speaks to the synergistic relationship between PMT and PFSI at PFSI, who wants to continue to grow its servicing portfolio and has the capital to do so can step in and fill the void when PMT wants to get better balance between its credit-sensitive strategies and interest rate-sensitive strategies. And then from a – so from a customer standpoint, they continue to see themselves in selling the loan to the same counterparty. And so they're not subjected to any of the noise after the fact that arises of where the loan goes. So it's a – I'd expect it to be – I expect the third quarter to be similar to the second quarter, as I said, but I don't see – and I think that's going to be the case.

I think one other thing that I'd add to that, because we did buy a small bulk package of MSRs during the quarter. And really the differentiation there is that PMT on – in terms of the servicing would prefer stable cash flows through the life with really little refinance variability and refinance – potential refinance expectations. And that is the character of the servicing portfolio that we bought for PMT, obviously, through correspondent we are purchasing loans that are at prevailing rates. And so that's why we are selling the bulk of that through or an increasing portion through the PFSI generally has stated that their objective is to bring on those higher rates while the purchase of bulk package at lower rates in PMT, which is not generally available through correspondent at this point.

Okay. And then switching gears just on capital. Leverage is running a little bit higher, I guess, the last few quarters. I mean, it's obviously came down this quarter, which is good to see, relative to what we saw pre-pandemic, yet you're buying back stock, which is supporting book value as well. Can you talk about how you weigh your leverage relative to buybacks? And how you're thinking about it just broadly, given the framework of different assets that are on the balance sheet today versus what it's been in the past? Thanks.

So in terms of the leverage, as you mentioned, came down pretty significantly quarter-over-quarter, a portion – a meaningful driver of that was the reduction in the inventory that we were holding on balance sheet for PMT for the correspondent business. . Our leverage has increased since the pre-COVID era. Some of that is around our shift toward the interest rate-sensitive strategies. So as we have moved more toward that interest rate-sensitive strategies, which is primarily appearing between the MSR and Agency mortgage-backed securities, the growing size of the MSR has necessitated and increased investments into the agency mortgage-backed securities. Those agency mortgage-backed securities generally come at a high overall leverage ratio. And so that is what has sort of driven up the – the overall leverage ratio over time. To the extent that we see that allocation declining, we'd expect the leverage ratio and a reallocation toward credit-sensitive strategies. We would expect that over time to result in a decline in the overall leverage ratio on the balance sheet. With respect to the share repurchases as you noted that would also serve to increase the leverage ratio. We – I think our stance towards the share repurchase at this point is really more focused around when we see a significant deviation, the share price to book value and see real potential for accretion there. We obviously saw some of that in the first quarter. I think there is a less opportunity for that today, but it is something, as you mentioned, that we sort of weigh when we're looking at the leverage profile versus the potential for return or accretion on the share repurchases and seek to balance out those considerations.

Okay and thanks for taking my questions.

As you know Kevin, the one thing I'd add to that also is we had really good, I would say, success in terming out the leverage in the second quarter. So we closed the PMT term note deal that doesn't contain margin call provisions. I think that we extend – I know we extended the PMT term notes that were due in May of 2023. We issued a 5-year term loan secured by Fannie MSR. So it's, I would say, the – it's the type of leverage. It's the type of debt that we have that also I look at. And then I think given the fact that we're terming out the debt as well, is something that we made really that will and the team made really good progress on in the second quarter.

Okay. Thank you, David. Thank you, Dan.

Thanks, Kevin

Your next question comes from the line of Bose George with KBW.

Hi, guys. Good afternoon once again. So I wanted to just ask about the run rate potential ROE being lower this quarter versus last quarter? And I mean it looks like a big part of that was the MSR expectation coming down. So just curious what drove that.

Sure. So looking quarter-over-quarter at really and the run rate is really looking at our near-term expectations for returns, really, a lot of that is driven by our expectation for short rates over the next several quarters. So if you go back to the beginning of Q2 or the end Q1, the last time we presented the run rate really much more of an expectation that short rates would move down in the relatively near term, which would bring down some of the funding costs on our interest rate-sensitive strategies, which are generally – have debt that's tied to short rates, to floating rate debt or to short-term repo in the case of the agency MBS. With the expectation that that will remain higher and then on the agency with an inverted curve and with spreads at the levels that they are, has constrained our expectation over the near-term based on where we are roughly today or a few – last week. Our expectation for what we see as the returns over the next few periods. – given the -- effectively the spread between our funding cost, what's expected to be higher short-term rates and the yield on our long-term assets and the spreads that are commensurate there. If we do see changes in that, if we see a – really a greater steepening of the yield curve or becoming less inverted or spreads widen out somewhat that could meaningfully improve our expectations for the returns go forward on the interest rate-sensitive strategies.

Okay. Thanks. And then actually, the – so the run rate EPS is obviously, I think, it was $0.30, so quite a bit below the dividend. So just curious if that's something you look at or this is sort of whatever transitory and so you kind of wait to see how things kind of shape up going forward?

Yes. So look, we've been pretty public in saying that we've always tried to keep the dividend tied to GAAP earnings. At the same time, we want to make it – we try to keep it consistent, and we try not to be reactive on a quarter-by-quarter basis. So we feel that it's important for those to understand where we see the run rate at the moment. We're going to wait and see where we are at the end of next quarter. But I think that having it tied to GAAP earnings, of course, we're having the cash to pay it. And we want to make it predictable to the extent we can. And so I think that for us, it's just, I think, a way to – let you and other shareholders know that this is where we're at, and we'll address it when we come back around next quarter and then we'll decide what we want to do.

So, skay. Makes sense. Great, thanks.

Your next question comes from the line of Matthew Howlett with B. Riley Securities.

Hey, guys. Thanks for taking question and thanks for the color. Just…

Hi, Matt.

Yes. So the taxable income, given that we've seen this increase in our interest rate sensitive strategies and a lot of the MSR is based in the TRS, the taxable income in the REIT, although we had a bit of a timing mismatch that we disclosed last year where that was ahead was not -- is not necessarily running ahead of GAAP income this quarter to date. So to David's point, since a lot of the business is in the TRS generally, we look at the GAAP EPS as sort of the – and our expectations there over time as the driver unless we are otherwise compelled to look at it differently via the taxable income, but that's not necessarily a constraining factor in this case currently.

Got you. And then on the subject of taxable income and earnings power going forward, you obviously made a lot of credit investments in the quarter, almost $100 million in the CRT and the jumbo securitization. What spreads are you seeing there, assuming they tightened towards the quarter? And then what's the outlook on the organic production via CRT or even a jumbo securitization program that you've done or you've done home equity in the past and maybe close the second. Just curious on the organic outlook for credit production?

Yes. Look, so Matt, I think that we had really strong returns in the credit-sensitive strategies. And I think that speaks to the credit spread tightening that we saw take place. I think that we have been pretty active this year and opportunistically buying credit-sensitive assets. We've deployed greater than $100 million in capital against credit-sensitive investments. And look, we've seen spreads come in, and so that's worked out well for us. We're always looking and evaluating opportunities in the market, and we're going to continue to do so. I think on the CRT front, look, I think that the return of front-end lender risk is not in the short term or medium term. I will tell you that we continue to talk to the GSEs and FHFA about it. It's an interesting issue and the fact that I think that given the size of the mortgage market, the GSEs need as much collateral as they can to provide the critical mass that they need in issuing stacker and cash. And then as you may or may not recall, there was some difference of opinion on the value of the front-end credit risk nature that we took on lender credit risk share versus they let loans seasoned for nine months before they issue a stacker and cash. I think we put on a forward trade and there is a value there. So there's just some differences in how we and they perceive value. Having said that, we know one thing for sure when it comes to GSEs and FHFA and that there's always change. And so we're continuing to have the discussions. And I think given our correspondent presence and market share dominance, I think that we believe that if CRT comes back, we'll be able to pivot quickly to be able to capitalize on that given our share in correspondent. As it pertains to other opportunities, look, I think that they see the progress that we're making in PFSI and our closed-in seconds, you can see a path to being – so those being sold to PMT to securitize and retain the subordinate bonds. So I think that that's something we're keeping an eye on. I think, as I mentioned earlier, that the bank regs that came out give me kind of a bullish view on what that can mean for securitization. And I think with that that will mean greater opportunity in buying jumbos and securitizing jumbos. And look, we've seen some of the banks that have been either seized or pulled back. We're pretty strong in jumbo loan lending. And so we're – as we've always done, we keep a close watch on that. We're not going to go down in credit, okay? We're not going to get into non-QM or kind of more of the cuspier part of the mortgage space. But there's – I think that we're looking for – we'll continue to look for the credit investments to be able to kind of take advantage of the core skills that the management team has led by Will and the team in our capital markets group. But I think that we're in a really good place in terms of kind of getting more balanced between the credit-sensitive strategies and the interest rate-sensitive strategies.

I appreciate that I was going to ask what the new bank rules, and it sounds like you guys are well positioned for that. Really appreciate it. Thanks, David and Dan.

Thanks, Matt.

Your next question comes from the line of Doug Harter with Credit Suisse.

Thanks. Just touching on that last comment about balance. I guess as you look forward, what is the right balance as you think about it? And at what point might you kind of retain more of the MSR creation just as you kind of think about finding that balance?

Yes. Look, I think it always – like from my perspective, it always starts out with return, okay, where is the highest return and that's always going to be the driving factor in how we manage PMT. I think that return, there's a day one return, there's a range of outcomes return as you think about it. I think that – I know that when we were approaching 60% and the interest rate sensitive strategies, it felt really kind of at a level where we need to get it more inbounds. We brought that down into the low 50s this quarter. I think that it's something that and stands now, I think the returns that we're getting on credit risk – on credit-sensitive strategies meet our hurdle rate in the REIT. And I think that is exhibited by the fact bottles small MSR portfolio, if we see MSRs that meet our return targets, we're absolutely going to invest in those. I think on the – in the correspondent business, it's tough. It's tough to – I think we're seeing conventional ROAs and kind of the new issue ROAs in kind of the mid-single digits, maybe a smidge higher. But I think you put leverage on that. And I think that it comes inside of the credit-sensitive returns. So I think it's something that it's not a hard and fast rule. We know that we were much lower than 50% just a few years back. But we're kind of taking it on a quarter-by-quarter basis to try to get it more aligned.

I think overall, generally speaking, yes, we'd like them to be between credit sensitive and interest rate sensitive over time, more even certainly in the past, credit-sensitive has been a greater proportion of PMT's investment book. But as David said, we are also mindful of the relative returns. And if we see an opportunity in interest rate sensitive, it's not going to preclude us from taking advantage of that.

And I guess as you look at the landscape, there seems to be a fair amount of loans kind of lower coupon discount loans that were probably some relatively high in credit quality. Is that from banks? Is that something that you would seriously consider for PMT?

It would be. I think that's – as I think about the servicing that we want to bring into PMT, I think that's more suited for PMT. I think it's got a longer life. It's going to have a more predictable pace of cash flows. It's not as reliant on recapture as kind of current note rate. And so it's a much more pure investment from that angle. We're not – we are seeing some packages, and we bought one of those, and it's something that we keep our eye out for PMT is the conventional low rate servicing is right kind of in their wheelhouse. And so I think that's – I think you've kind of hit it on what we think is better suited for PMT.

And I guess what about on the loan side, jumbo loans or something of that nature that might come out of banks.

Look, I think buying seasoned jumbo loans is not really an area with the PMT. We're going to look at. We'll keep these guys busy looking at things. But I just think that right now, there are – there's still a pretty good bank bid for that. I think that we're seeing – we've seen private equity participation in that space as well, but I don't think that seasoned jumbo loans will be an area that you'll see us overly active in.

Great. Thank you.

Your next question comes from the line of Eric Hagen with BTIG.

Hello, again. I think a couple of questions here. For the CRT portfolio, so much of that risk has been delevered at this point. Like is there a way to relever that collateral in between the debt rolling over or coming deal? And then second question here, I mean how much more liquidity or capital do you think you'd need to scale up the servicing portfolio from here? Like after you layer in the MBS and any rate hedges on top of that, would you say that there's like a rule of thumb for every $1 billion of incremental servicing, we're using x amount of capital or liquidity to support that growth?

Sure. So with respect to the CRT, we've, generally speaking, I guess, in a global sense, it has been delevered, right? So looking through to the homeowner where you've got CLTVs on a lot of it, LTVs on a lot of the underlying loans have gone down pretty substantially, you got 50% LTV and so forth. But with respect to the value of the assets that we hold at the credit, the credit risk pieces that we hold we're sort of able to relever those by issuing notes. We did some in this past quarter. There are very old deals we have on repurchase agreements that are based on the value of the pieces that we hold. So I don't think that those have necessarily been tremendously delevered from an investment point of view although the way we think about it is that the risk has been substantially – has substantially decreased versus when we originally entered into the contracts. With respect to investments in MSR roughly speaking, if you look at the leverage that we're able to apply, at least on a marginal basis in terms of the MSR really at about a – call it a 2:1 basis that probably takes into – that roughly takes into account on the value of the MSR. So to your point, if you're buying $1 billion of MSR call it a – depends on the servicing strip, depends on the exact type of the MSR. But just for round numbers, call it, 1.5 points. So overall, on $1 billion, roughly $15 million of capital gross and then two thirds of that comes down to a, call it, a $5 million equity investment and that would roughly also account for any margin call reserves or and the incremental amount of MBS that would be required to hedge that. So I think that's the rough estimate there.

Yes, that's helpful. Thank you guys very much.

Sure.

We have no further questions at this time. I'll now turn it back to Mr. Spector for closing remarks.

Thank you, operator. And I'd like to thank all of you for participating in our first live earnings call, and it's been good two calls here we've had today for both companies. And if you have any questions, we're here for you, and I look forward to speaking with all of you in the near future. Thanks again, everybody.