AG Mortgage Funding Belief (MITT) Q3 2021 Earnings Name Transcript

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AG Mortgage Funding Belief (NYSE:MITT)
Q3 2021 Earnings Name
Nov 05, 2021, 8:30 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Welcome to the AG Mortgage Funding Belief third quarter 2021 earnings convention name. My identify is John. I will be operator for at present’s name. [Operator instructions] Please word the convention is being recorded.

And I will now flip the decision over to Jenny Neslin.

Jenny NeslinCommon Supervisor and Secretary

Thanks, John. Good morning, everybody, and welcome to the third quarter 2021 earnings name for AG Mortgage Funding Belief. With me on the decision at present are David Roberts, our chairman and CEO; T.J. Durkin, our president; Nick Smith, our chief funding officer; and Anthony Rossiello, our chief monetary officer.

Earlier than we start, please word that the knowledge mentioned in at present’s name could include forward-looking statements. Any forward-looking statements made throughout at present’s name are topic to sure dangers and uncertainties, that are outlined in our SEC filings together with below the headings Cautionary Assertion Relating to Ahead-looking Statements, Danger Components, and Administration’s Dialogue and Evaluation. The corporate’s precise outcomes could differ materially from these statements. We encourage you to learn the disclosure concerning forward-looking statements contained in our SEC filings, together with our most just lately filed Kind 10-Ok for the yr ended December 31, 2020 and our subsequent periodic stories filed with the SEC.

Besides as required by regulation, we’re not obligated and don’t intend to replace or to overview or revise any forward-looking statements, whether or not because of new data, future occasions, or in any other case. Through the name at present, we are going to discuss with sure non-GAAP monetary measures. Please discuss with our SEC filings for reconciliations to essentially the most comparable GAAP measures. We can even reference the earnings presentation that was posted to our web site this morning.

To view the slide presentation, flip to our web site, www.agmit.com and click on on the hyperlink for the third quarter 2021 earnings presentation on the house web page within the Investor Presentation part. Once more, welcome to the decision, and thanks for becoming a member of us at present. With that, I might like to show the decision over to David.

David RobertsChairman and Chief Government Officer

Thanks, Jenny, and good morning to everybody. I am happy to report that we had a terrific third quarter as we proceed to execute on our transition to a pure-play residential credit score mortgage REIT. As a part of our new centered mission, we considerably accomplished the exit of our legacy belongings at costs and phrases that had been higher than or consistent with our expectations. These transactions contributed to a fabric enhance in our e book worth per share.

As of September 30, our e book worth per share was $16.92 and our adjusted e book worth per share was $16.45. Each figures symbolize a internet enhance of 12% from June 30. These profitable gross sales and resolutions of our legacy belongings present us with vital liquidity. We have now been utilizing a portion of that liquidity to execute on and develop our go-forward marketing strategy of originating and securitizing non-agency loans.

We proceed to imagine that we’ve got a aggressive benefit in executing that plan, a bonus based mostly on our proprietary origination engine of Arc Dwelling, mixed with the broad useful resource sources and experience of Angelo Gordon’s structured credit score group. As T.J. and Nick will talk about, our origination and securitization actions yr thus far have been comfortably inside our projected vary of 14% to 18% return on fairness. We have now additionally been happy with the quantity and high quality of our originations in addition to the continued rollout of recent origination packages and new origination channels all of which is able to assist propel our development over the long run.

As we shift our lower-yielding investments and extra liquidity into these very enticing returns, we’ve got continued to make progress towards realizing the complete earnings potential of our go-forward technique. For the third quarter, our earnings had been closely influenced by the exit of our legacy belongings. Our third quarter GAAP earnings per share was $1.87 and our core earnings per share was $0.96. As we did on our second quarter earnings name, we would wish to level out that core earnings doesn’t seize sure necessary parts of our originate and securitized go-forward marketing strategy, and Anthony will spotlight that later within the name.

For the third quarter, we maintained our dividend of $0.21 per share. Future dividend selections, which, in fact, are at all times topic to board approval, shall be influenced by our expectations and projections of the continued execution of our rotation into our go-forward technique and the ensuing constructive impact we imagine that can have. I’ll now flip the decision over to T.J.

T.J. DurkinPresident

Thanks, David, and good morning, everybody. As David talked about, we grew adjusted e book worth by roughly 12% through the quarter to $16.45 per share from $14.72 per share final quarter. We grew the portfolio from $2 billion to $2.2 billion, whereas lowering our financial leverage ratio from 2.2 occasions to 1.8 occasions. Through the quarter, we doubled our liquidity to over $143 million of money in unencumbered Company MBS.

We’ll stroll you thru our strong pipeline and the way we see the corporate quickly deploying this recent capital. To dig a bit deeper into the corporate’s exercise, we’re lively in buying roughly $610 million of non-agency loans. Our mortgage affiliate Arc Dwelling additionally hit report manufacturing inside its non-agency channel through the third quarter, which Nick will stroll by in additional element later within the name. Through the month of October, the corporate continued its strong acquisition tempo by buying a further $386 million of loans, demonstrating the consistency in our pipeline of belongings to help MITT’s development.

As beforehand disclosed, each legacy business loans that had been on our books heading into the third quarter had been paid off at par. These proceeds, mixed with our beforehand disclosed sale of CMBS earlier within the quarter, generated internet proceeds of over $63 million for reinvestment. As David talked about, but it surely bears repeating, MITT has no remaining business publicity, and we at the moment are totally centered on constructing our residential mortgage portfolio. Through the quarter, we additional diminished our publicity to Company MBS as we thought the idea had reached a degree the place additional tightening was unlikely and likewise bought our remaining extra MSR portfolio.

Additional strengthening our liquidity place, we additionally generated proceeds simply shy of $30 million from a big accretive sale of our legacy RPL and NPL entire loans, which we offer extra particulars on later within the presentation. Shifting on to our financing and capital exercise through the quarter. We efficiently accomplished one other securitization throughout August, which — and we offer extra particulars on this transaction later within the deck. As I’ve beforehand acknowledged on previous earnings name, we’re dedicated to being very disciplined with reference to the pacing of our securitizations to derisk our warehouse strains.

Given our increasing funding pipeline and in an effort to supply flexibility, through the quarter, we elevated our borrowing capability for non-QM merchandise to $1.1 billion and added $500 million of borrowing capability to finance GSE nonowner-occupied loans. Notably, this quarter, we had been lively in utilizing the capability below our current share repurchase program. In combination, we repurchased roughly 260,000 shares at a weighted common worth of $11 even, a worth nicely beneath our e book worth, deploying roughly $2.8 million of the corporate’s extra liquidity. The corporate has roughly $11.8 million of extra capability left below the present buyback plan, and we’ll proceed to guage repurchases to the extent it’s accretive to our steadiness sheet.

Turning to Slide 7. We felt it was necessary to take some extra time to stroll traders by this visible of what was a very lively and necessary quarter in MITT’s repositioning to a pure-play residential mortgage credit score REIT. We started the quarter with $71 million of liquidity. Securitization proceeds in extra of warehouse strains created a further $30 million.

The par payoff of our remaining CRE loans and gross sales of CMBS created a further $63 million of internet proceeds. The sale of reperforming and nonperforming loans generated $29 million. And rounding it out was one other $6.8 million from company gross sales. We successfully deployed this liquidity through the quarter to take a position $58 million internet of financing into non-QM loans, make investments one other $16 million internet of financing into GSE nonowner-occupied loans, repurchased $2.8 million of frequent shares, once more at a weighted common worth of $11, and paid frequent and most well-liked dividends in combination of $8.9 million.

So in abstract, through the quarter, we had been capable of double our liquidity, efficiently exiting our non-core enterprise strains at a revenue, offering the corporate with ample firepower to proceed deployment throughout the residential entire mortgage area. Subsequent to quarter finish, we’ve got deployed $48 million of liquidity into new entire mortgage investments, leaving us with $91 million of liquidity as of October 31. On the subsequent slide, we needed to point out the exceptional progress made since our fourth quarter earnings name once we started making the transition to a pure-play residential credit score REIT, and our portfolio composition has solely continued to shift extra towards non-agency loans because of our October purchases. Through the first three quarters of 2021, we achieved substantial development in MITT’s funding portfolio and adjusted e book worth per share from $1.4 billion and $11.81 per share to $2.2 billion and $16.45 per share, respectively.

This portfolio development was led by sturdy mortgage acquisition channels leading to $1.3 billion of gross residential purchases through the yr and additional quantity development at our working associate, Arc Dwelling. Through the yr, we had been affected person in exiting legacy non-core belongings on the opportune time with the intention to maximize proceeds and earnings for our traders. Whereas we’re happy with the progress that has been made yr thus far, what actually drives our sturdy convictions in our enterprise mannequin is the rising pipeline of alternatives we see and future potential earnings energy development, this shift gives our traders, which brings us to the subsequent slide. We have now spent plenty of time formulating our plan for MITT’s future, notably in mild of all of the crew’s accomplishments yr thus far in simplifying the enterprise and rising our entire mortgage portfolio, enabling the corporate to reposition to its new centered technique.

This slide illustrates the compelling funding alternative we see in MITT by highlighting how we anticipate to unlock the embedded earnings energy of MITT’s fairness by redeploying it into our new technique. At a excessive degree, we imagine we will create retained investments submit securitization at loss adjusted ROEs of 14% to 18%. Additional, we have seen the returns play out by our most up-to-date securitization. And regardless of all of the progress that has been made yr thus far, we nonetheless see roughly 40% of our fairness base accessible to be rotated into our securitization technique, which ought to additional drive earnings energy.

Away from the funding portfolio, we are going to nonetheless be proactive in addressing our steadiness sheet optimization, together with by additional repurchases of our frequent shares at reductions and persevering with to work with our most well-liked shareholders on exchanges that make sense for each events. With that, I will flip the decision over to Nick to additional talk about our portfolio in Arc Dwelling.

Nick SmithChief Funding Officer

Thanks, T.J., and good morning, everybody. Turning to Web page 10. Right here, we supplied a breakdown of our residential portfolio the place you’ll be able to additional see the migration of belongings into newly originated non-agency loans, pushed by gross sales of legacy belongings and continued reinvestment into residential mortgages. Given our acquisition tempo, we thought it might be useful to focus on our post-quarter exercise, which included additional rising the residential mortgage e book by roughly $386 million, with loans sourced from each Arc Dwelling and third-party originators.

Whereas I will talk about extra on Arc in later slides, I believe it is price noting right here that we’ve got seen a significant pickup in registrations and locks by varied Arc Dwelling origination channels, which we imagine will additional help our portfolio development. Additionally on this slide, we highlighted the belongings presently on warehouse totaling $760 million, which we are going to search to securitize within the close to time period as a part of our technique. On Web page 11, we supplied a abstract of mortgage traits for our non-QM portfolio in addition to the GSE nonowner-occupied loans we started buying within the third quarter. We imagine we will proceed to accumulate comparable credit by the growth of current acquisition channels and the rollout of recent ones.

12 months thus far, we’ve got acquired roughly $1.3 billion of newly originated non-agency product and proceed to develop our footprint at Arc Dwelling, which I’ll cowl in additional element on the subsequent slide. Through the quarter, we additionally bought roughly $213 million of investor loans, a further $105 million in October. As many anticipated, the FHFA and Treasury suspended sure amendments to the PSPA carried out by the earlier administration. One modification was the 7% GSE acquisition cap on nonowner-occupied and second houses.

Though we have seen a slowdown within the tempo of GSE eligible nonowner-occupied acquisitions subsequent to the suspension, we stay assured in our capacity to deploy capital on this area at enticing returns. We’re pleased with our progress this yr in repositioning our portfolio and presently have enough warehouse capability and liquidity to help continued development. To reiterate what T.J. stated earlier, as we develop, we’re centered on rising the tempo of our securitizations to maintain up with the tempo of acquisitions and reduce our warehouse publicity.

Over the summer season, we efficiently accomplished a number of securitizations, considerably enhancing our value of financing, which we anticipate to learn our internet curiosity margin and earnings going ahead, and we proceed to work by varied securitizations for the fourth quarter. Shifting on to Web page 12. Arc Dwelling had a powerful quarter, recognizing pre-tax revenue of $5.6 million, $2 million of which contributed to MITT’s earnings throughout this quarter. Additionally on this web page, we needed to supply extra transparency to traders concerning Arc Dwelling’s monetary positions in addition to traits on its excellent MSR publicity.

Arc Dwelling continues to actively handle this publicity and bought roughly $2 billion of UPB within the third quarter, leading to roughly $16 million of proceeds. The remaining MSR portfolio’s honest market worth is roughly $62 million and can be utilized for added liquidity given the present low utilization of Arc’s current MSR lending facility. Staying on Arc Dwelling, however turning to the subsequent web page. Origination and lock volumes have remained comparatively secure quarter over quarter, whereas Arc continued to shift towards non-agency manufacturing.

This shift has helped help margins in an setting the place compression remains to be occurring within the typical and gove area. Non-QM and GSE nonowner-occupied mortgage fundings elevated to roughly 50% of Arc Dwelling’s complete manufacturing. And as talked about beforehand, we’ve got extra just lately seen an uptick in registrations and locks. Given this development, Arc has confirmed to be an necessary contributor to MITT’s technique with MITT presently buying roughly half of Arc Dwelling’s non-QM manufacturing with the steadiness flowing to different Angela Gordon associates.

MITT has additionally bought primarily all of Arc’s GSE nonoccupied mortgage manufacturing. Total, we stay constructive on with the ability to prudently develop MITT’s non-agency pipeline organically by Arc Dwelling. Shifting on to Web page 14. This web page gives a abstract of our credit-sensitive mortgage place over the earlier 12 months.

As talked about by T.J., we proceed to actively handle this portfolio. And through the quarter, we bought extra loans, leading to roughly $6 million of features. This sale, mixed with continued asset administration has resulted in a major discount within the measurement of this portfolio for the reason that center of final yr. Past these liquidations, the portfolio continues to learn from sturdy housing tailwinds and traditionally low mortgage charges.

At present, 79% of the portfolio is performing, whereas practically one-third of the 21% of contractually delinquent loans are making funds. Voluntary prepayments proceed to development upward with a 12-month common voluntary prepayment price within the low teenagers. Of the 26% of debtors that acquired COVID-related help, practically two-thirds are contractually present at present. Flipping to the subsequent web page.

Right here, you’ll find a abstract of our company portfolio. As of the top of the quarter, roughly 22% of our fairness was allotted in Company RMBS. As we beforehand talked about, we’ve got continued to scale back our company publicity, promoting off $190 million through the third quarter, and anticipate that development to proceed as we transition our fairness into residential credit score belongings. Anthony will now go over our monetary ends in extra element.

Anthony?

Anthony RossielloChief Monetary Officer

Thanks, Nick, and good morning. Turning to Slide 16. We offer a abstract of our present financing profile. In executing our non-agency technique, we proceed to focus our efforts on rising the tempo of securitizations so we will get hold of non-recourse non-mark-to-market financing on our mortgage portfolio, which gives meaningfully decrease financing prices as in comparison with when loans are financed on warehouse.

On this slide, we spotlight that roughly 37% of our financing is thru securitized debt, which elevated this quarter as a consequence of our all of the securitization. We anticipate this allocation to proceed rising given our current mortgage inhabitants accessible for securitization, which once more speaks to the earnings potential in our present portfolio. Moreover, our present liquidity place mentioned by T.J. earlier coupled with our accessible capability of $944 million places the corporate in place for additional development.

Please word that we included a slide in our appendix which gives particulars on how we construction our most up-to-date deal, which is consolidated on the corporate’s steadiness sheet. Total, we securitized roughly $268 million of non-QM UPB, which — this appendix will present extra particulars on our retained curiosity. On Slide 17, we supplied a reconciliation of our e book worth per frequent share, which elevated by $1.74 quarter over quarter. Throughout Q3, we reported internet revenue accessible to frequent shareholders of roughly $30 million or $1.87 per totally diluted share.

Earnings through the quarter had been pushed by varied components, together with mark-to-market features throughout our new origination and RPL/NPL portfolios; features from the decision of our two remaining business loans and the sale of our remaining CMBS portfolio; features from the sale of RPL/NPLs; and earnings contributed from our 45% fairness methodology funding in Arc Dwelling, which is held in a taxable REIT subsidiary. This enhance in e book worth is reflective of our present quarter earnings, offset by the popular and customary dividends declared through the quarter and our frequent share repurchases approximating $2.8 million. As mentioned on our earlier earnings name, we additionally disclosed adjusted e book worth per frequent share of $16.45, which is computed based mostly on complete fairness much less your complete liquidation choice of our most well-liked inventory. Turning to Slide 18.

We disclosed a reconciliation of GAAP internet revenue to core earnings for the third quarter, the place you will note core earnings was $0.96. Core earnings was primarily pushed by two objects. The primary included receiving 12 months of deferred curiosity upon the decision of Industrial Mortgage L, which was modified throughout 2020. The second associated to beforehand talked about RPL/NPL sale.

Particularly, the proceeds from the sale went to pay down the bonds secured by the underlying loans and the corporate held sure of these bonds at reductions. As the corporate acquired par worth on the bonds, this resulted in accelerated accretion on these belongings through the quarter. It must be famous that core earnings doesn’t embody $1.6 million of features Arc Dwelling acknowledged through the quarter on loans bought to MITT. Nonetheless, these earnings are acknowledged as unrealized features contributing to our total e book worth enhance.

Lastly, I will reiterate that we ended the quarter with complete liquidity of roughly $144 million, which was inclusive of $102 million of money and $42 million of unlevered Company RMBS. And as we proceed to buy non-agency residential loans subsequent to quarter finish, we ended October with $91 million of liquidity. This concludes our ready remarks. And we might now wish to open the decision for questions.

Operator?

Questions & Solutions:

Operator

[Operator instructions] And our first query is from Doug Harter from Credit score Suisse.

Doug HarterCredit score Suisse — Analyst

You simply stated you ended October with $91 million of liquidity. How are you desirous about what’s the liquidity cushion that you simply guys wish to keep? So how ought to we take into consideration sort of the “extra liquidity” place at present?

T.J. DurkinPresident

Sure. I imply — Doug, it is T.J. We clearly kind of have our inner threat fashions to keep up liquidity for margin calls and the like. So I believe we’re nicely by that given the amount of money we generated through the quarter.

So we predict we will additional spend that down by a good quantity as we glance into sort of yr finish. Roughly talking, like $40 million to $50 million based mostly on the pipeline and kind of the place we’re seeing the scale of our gestation financing or warehouse threat.

Doug HarterCredit score Suisse — Analyst

Bought it. After which I assume how do you consider the timing of future gross sales within the NPL market, which is — that market’s fairly sturdy at present. How do you consider making the most of that, however perhaps it is a little bit bit a methods away till you really need the liquidity? How do you sort of steadiness these two components?

T.J. DurkinPresident

Sure. It is a few components. One, it is — we have financed plenty of that asset class by varied securitizations. So a few of it’s attending to — getting by durations of the place we will promote the belongings or the place we will both collapse, refinance or promote out of conventional kind of NPL securitization.

So a few of it’s structurally timed. After which we simply discover that aggregating to some kind of crucial mass, will get higher execution than promoting in smaller swimming pools. So these two issues I might say, drive us towards much less frequent, however bigger, most likely hopefully extra accretive disposition. So we’ll proceed to do it into 2022. 

Doug HarterCredit score Suisse — Analyst

Bought it. After which simply from a REIT standpoint, is there any — or liquidity standpoint, any quantity of company that you’d sort of wish to maintain long run as you’ll be able to sort of proceed to construct towards the longer term?

Anthony RossielloChief Monetary Officer

Sure, Doug. The best way we give it some thought is the belongings that we’re presently buying with the brand new origination or certified belongings for retest. So the concept can be to wind down the company portfolio, and we’d must be relying upon it for REIT and the AG Belief.

Operator

Our subsequent query is from Bose George from KBW.

Bose GeorgeKBW — Analyst

Truly, I simply needed to return to Slide 18. I assume it was the place you had the GAAP reconciliation. Are you able to simply go over that $15 million once more kind of the completely different drivers of that?

Anthony RossielloChief Monetary Officer

Sure. In order that $15 million is the — we discuss with the RPL/NPL sale. So upon promoting or liquidating these belongings, we held bonds that had been recorded at a reduction to par, and we acquired par on these bonds. So that is the accelerated accretion.

Bose GeorgeKBW — Analyst

OK. That is smart. After which the funding in affiliate line merchandise in your steadiness sheet, are you able to remind me what’s in there? I assume Arc’s a part of it, however what’s — sure, what’s — and it is sort of come down over time. Simply needed to determine that out as nicely.

Anthony RossielloChief Monetary Officer

That is appropriate. Arc is roughly $52 million of that steadiness. The rest is what we discuss with as land-related financing, and we even have a small three way partnership that has non-QM loans that we put money into.

Bose GeorgeKBW — Analyst

OK. And the decline there may be — are these investments simply taking place over time as a result of it is sort of gone down over just a few quarters?

Anthony RossielloChief Monetary Officer

That is appropriate. And that decline additionally associated to the RPL/NPL sale as a result of the loans we bought had been in that line merchandise.

Bose GeorgeKBW — Analyst

OK. Nice. After which only one extra for me. The 14% to 18% ROE on the bought loans, are you able to simply undergo a little bit bit simply the leverage structural? After which what repo on prime of that you simply’re assuming?

T.J. DurkinPresident

Sure. So once we quote the 14% to 18%, that kind of submit securitization. So clearly, through the gestation interval, we’re extremely incentivized to show that — to shorten up that ramp interval. The leverage we’re taking out on the securitizations is, name it, mid-90s p.c, it might be barely larger, might be barely decrease versus our acquisition worth.

And that is the way you arrive on the 14% to 18%. Definitely, as sure belongings deleverage over time, structurally, we will add extra monetary leverage all through kind of our holding interval for these belongings. However typically, that could be very modest.

Bose GeorgeKBW — Analyst

OK. And so the 14% to 18% — sorry, go forward.

T.J. DurkinPresident

I used to be going so as to add that we have additionally been capable of take that kind of conventional repo financing and time period that out with non-mark-to-market as nicely.

Bose GeorgeKBW — Analyst

OK. So simply excluding the repo do you get to the 14% simply construction — with the securitization leverage. Sure, I used to be simply questioning what that will be excluding like if there was no repo in any respect on it.

T.J. DurkinPresident

Sure. We’re most likely barely decrease than that.

Anthony RossielloChief Monetary Officer

Barely decrease.

Operator

Our subsequent query is from Eric Hagen from BTIG.

Eric HagenBTIG — Analyst

A few questions. Are you able to spotlight some extra element round how you consider the trade-off between doubtlessly elevating the dividend and shopping for again inventory? After which are you able to additionally describe the profile of the non-QM loans that you simply’re shopping for at this level how the credit score has perhaps advanced over the past, name it, yr from what you’ve got been shopping for?

David RobertsChairman and Chief Government Officer

On the dividend level — it is David Roberts. As we have stated previously, we have a look at our dividend coverage based mostly on the present quarter and our go-forward look, and we are going to proceed to do this. When it comes to repurchase versus dividends, I might say that we’re — one is the repurchase is an opportunistic episodic kind of funding. And the dividend is, I believe, on the coronary heart of why individuals are invested within the mortgage REIT area for that dividend revenue.

And so we’re actually centered on rising our earnings, which might allow us to develop our dividend over time if we’re profitable.

Nick SmithChief Funding Officer

Eric, that is Nick. On the credit score high quality and kind of positioning of the belongings, the good factor is we do have and have emphasised within the presentation a bunch, the Arc Dwelling channel. By that channel, we have had minimal or virtually no growth of our tips. We nonetheless do not feel an amazing quantity of strain.

It is typically very up in credit score. We’re speaking excessive 60s, low 70 kind LTV in combination and mid-700s FICOs. We really see a good quantity of alternative going up in credit score. So we proceed to be constructive on the supply to supply enticing belongings with out actually having to go additional and additional out in credit score. 

Operator

Our subsequent query is from Jason Stewart from Jones Holding.

Jason StewartJonesTrading — Analyst

Good quarter. I needed to get your up to date ideas on Arc and given the energy in that platform, if there’s any new ideas about persevering with to be a JV or if it is smart to be a separate entity in some unspecified time in the future?

David RobertsChairman and Chief Government Officer

We have now no present ideas of fixing that construction. I believe that solutions your query.

Jason StewartJonesTrading — Analyst

Sure. No. Certain, does. OK.

Truthful sufficient. After which simply switching to FHFA and ideas round product construction that doubtlessly might be evolving with Sandra Thompson and any kind of ideas across the credit score field altering and what that market alternative seems to be like for Arc can be useful.

T.J. DurkinPresident

So the present administration I do not assume goes to be the kind of modifications out of there’ll impression kind of our capacity to supply belongings. Clearly, the suspension of the 7% cap that is already occurred. And as talked about within the presentation, we have already seen a slowdown there, albeit we’re nonetheless sourcing these belongings. We nonetheless just like the returns.

Definitely, it is nonetheless on the desk that you could possibly see that get reversed. It is presently kind of pending overview by the FHFA. We’d have seen different modifications, however I believe that has extra to do with kind of the capital base of Fannie and Freddie and the CRT coming again as they revisit kind of capital guidelines there. So I do not see that as impacting our present e book of enterprise, if something, that is simply one other asset class that down the street we may doubtlessly have a look at.

Clearly, at present, we’re not. So I believe it is nonetheless the identical kind of coverage modifications that occurred earlier within the yr are in place. And that is the place we actually see development and growth for our enterprise. In order that’s kind of what we see for now.

Jason StewartJonesTrading — Analyst

And congratulations on some good outcomes. 

David RobertsChairman and Chief Government Officer

Thanks, Jason.

Operator

And we’ve got no additional questions presently.

David RobertsChairman and Chief Government Officer

OK. It is David Roberts. Simply to conclude, I hope what got here by all the knowledge we had — definitely had loads to speak about this quarter is our enthusiasm or not solely the place we’re positioned, however for the energy of our crew and our sources and the profitable execution thus far of our transition. I can let you know that as a administration crew, we’re very excited for the longer term and actually imagine that we’ve got all of the instruments needed to complete this transition and proceed to develop.

So thanks very a lot to your time, and we stay up for reporting to you subsequent quarter. 

Operator

[Operator signoff]

Length: 36 minutes

Name individuals:

Jenny NeslinCommon Supervisor and Secretary

David RobertsChairman and Chief Government Officer

T.J. DurkinPresident

Nick SmithChief Funding Officer

Anthony RossielloChief Monetary Officer

Doug HarterCredit score Suisse — Analyst

Bose GeorgeKBW — Analyst

Eric HagenBTIG — Analyst

Jason StewartJonesTrading — Analyst

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