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PennyMac Mortgage Investment Trust (NYSE:PMT)

Barclays Capital Global Financial Services Conference

September 10, 2012 12:00 AM ET

Executives

David Spector - President & CEO.

Andy Chang - Chief Business Development Officer

Analyst

Unidentified Analyst

Speakers from PennyMac we have President and CEO, David Spector along with Andy Chang prior to joining PennyMac in addition to that stop at Morgan Stanley, David like many of the executives at PennyMac spent a fair amount of time at countrywide. And well PennyMac now is a mortgage it's part of a broader integrated originator servicer and investment mortgages with a very interesting, young future. So with that I will hand it over to David for his comments.

David Spector

Thank you Mark. Before we begin please take a moment to look over the disclaimer regarding forward-looking statements, now let me begin with a brief market overview. As I am sure you're all aware of the severe dislocations occurred in U.S. mortgage and housing markets is now approaching the five-year mark but we're beginning to see indications of market improvements. This is particularly evident in some of the areas hardest hit by the downturn, home prices are improving on the national basis while home purchase activity in several areas has been robust with investor demand for REO properties remaining strong, these data points suggest to us that prices are beginning to stabilize. Our experience with second-quarter REO and for closure sale liquidation suggest that demand increased in and the prices received for those properties were generally higher than sales of comparable properties in the previous quarter.

Ultimately price stability is necessary for consumers or investors to feel confident that home values aren’t going to decline after they buy a home. Clearly their downsized risks from a weak job market and slowing economic activity however we're hopeful the housing market will continue to stabilize and we remain cautiously optimistic about the prospects for home prices as we move into the latter half of 2012.

Low mortgage rates and programs such as HARP 2.0 and the FHAs negative equity refinance program have boasted refinance volumes and helped homeowner’s lock-in historically low rates on their mortgages. Additionally low rate coupled with attractive home prices and higher cost to rent makes purchasing a home more attractive. These factors appear to be having a positive impact on consumer attitudes towards homeownership which seems to be improving. While there are signs of improvement in the housing markets, we are also continuing to see a steady flow of distrust home loans being offered for sale. The attorneys general foreclosure settlement with the large banks and the desire to free up capital will drive additional sale of distress home loans going forward.

The sales will likely consist of non-performing and re-performing loans both of which have the potential to provide attractive returns to companies with the requisite servicing expertise to drive timely and effective resolutions. The correspondent landscape is going through a transformation as most of the big banks who have been the market leaders in the channel for many years are exiting or materially reducing their volumes. This market change is primarily due to the pending implementation of the Basel III capital requirements, operational complexities and Rep & Warrant issues.

Many of those banks have shifted their focus to their retail channels, additionally the Federal Housing Finance Agency, FHFA is working to drive parity and guarantee fees across mortgage lenders in order to narrow the competitive advantage enjoyed by the largest lenders and to reduce concentration risk. Thus far the FHFA has been successful in narrowing this gap and may choose scenario further by the end of the year.

This will help small and midsize lenders to compete more effectively with the large banks and drive more the total origination market to these lenders. These factors have created significant opportunity for non-bank financial intermediaries such as PMT to fill the resulting void and we think there is still considerable amount of growth potential for non-bank financial intermediaries in this channel. The current low mortgage rate environment coupled with the challenges that banks are facing with their mortgage related exposure have helped to increase the attractiveness of investments in mortgage servicing rights, Newly originated MSRs have relatively low prepayment risks given the historically low interest rate environment which enhances their return profile. Also regularity complexities and Basel III capital considerations will likely drive many large bank services to sell legacy MSRs.

We anticipate that opportunities to acquire bulk servicing rights will remain for the foreseeable future. Against this backdrop to turn to slide four, PMT is a unique enterprise that is focused on investing in the U.S. residential mortgage market; it engages opportunistic investments while capitalizing on emerging opportunities of the market converges towards normalization. PMT is an externally managed REIT leveraging the capabilities of PNMAC Capital Management, PCM and its affiliate PennyMac Loan Services, PLS.

PCM currently manages 1.7 billion of equity and provides investment management, knowledge and expertise to invest in distressed mortgage loans and engages in counter-activity for purchases of newly originated prime mortgages from correspondence sellers. PLS provides the operational infrastructure and capabilities for both loan fulfillment and mortgage servicing together PCM and PLS enable PMT to purchase opportunistic investments in residential mortgages and provide synergies that we believe maximize shareholder returns.

Now let’s turn to slide five and review PMT second quarter and also some of the highlights in the third quarter thus far. Our second quarter’s results demonstrated significant earnings power of PMT with both of the company’s business segments. Correspondent lending and investment activities delivered double-digit pretax earnings growth from the first quarter. Net income was 29.6 million in the second quarter a 55% from the first-quarter on revenue of 64.4 million. Diluted earnings per share reached an all-time high of $0.79, a 22% increase from the first quarter. Return on average equity was 17%, we believe this is particularly notable considering the raising of over 200 million in new equity in the quarter corner roughly a third of our market capitalization at that time demonstrating our ability to quickly and effectively deploy capital in accretive opportunities.

Our correspondent business continue to perform well, correspondent purchase activity increased 88% during the quarter to 3.4 billion in total purchases of which conventional purchases accounted for 1.8 billion PMT was the number seven correspondent channel originator channel originator in the second quarter according to Inside Mortgage Finance up from number 11 position in the first quarter of 2012.

Our investment activities perform well and we are pleased with the performance on PMTs distressed mortgage loan investments during the quarter. Pretax earnings increased 82% from the first quarter driven by a 144% increase in net investment income. We purchased 402 million in UPB reports distressed home loans during the quarter which were comprised of 224 million in UPB non-performing home loans and 178 million in UPB of re-performing home loans.

Re-performing pools are likely to become more prevalent in the pipeline distress available to purchase going forward. The second quarter’s results underscore the strength of PMTs business model and our ability to capitalize on opportunities as they emerge. Look at the highlights for the third quarter today, we begin with the equity offering we complete in August of over 70 million shares generating proceeds totaling 357 million. The offering was met with both strong institutional retail demand and the underwriters green shoe option was fully exercise, we expect to use a portion of the capital assurance to purchase a $452 million pool of nonperforming loans. This purchase alone would make the third quarter 2012 the highest quarter for distress loans purchased since the first quarter of 2011 and we are actively pursuing additional distressed home loan pools.

Our correspondent lending business continues to perform exceptionally well with total purchases totaling 3.9 billion UPB to August. The new capital will also be used to facilitate the ongoing growth of the correspondent business and additional investment in MSRs.

Now let’s turn to slide six and look at the second-quarter performance by business segment in greater detail. PMT has two business segments, investment activities which represents the company’s investment in legacy distressed mortgage loans, REO properties, ABS, MBS and MSRs and the corresponding lending segment which represent the Company's business of purchasing, pooling and reselling new mortgage loans. Total pretax income for PMT was $38 million in the second quarter with 26 million coming from our investment activities.

Pretax income for this segment was driven by significantly higher net investment income which was driven by higher liquidation activity improved price-performance and improving loan characteristics such as reduced delinquencies. Liquidation activity included loan repayments REO sales and sales of foreclosed properties to third parties all of which rose during the quarter.

In general improvement of loan attributes occurs as loans in the portfolio move closer towards their ultimate resolution. Home values performed better in the second quarter against earlier projection which contrast with the first quarter of 2012 performance when home values decreased more than projected. Generally home price performance improved in the second quarter against our projection and the regions were PMT has greater exposure primarily California and Florida. However the improvement in home price performance in the second quarter was partially offset by our projection of future home prices which tempered values of our distressed loan portfolio by extending out the recovery period for home prices.

While we are encouraged by recent home price improvements in several areas of the nation we recognize that there continues to be uncertainty in the future path of home prices, expenses in the segment rose 13% primarily due to an increase in servicing expense attributable to an increase in liquidation and loss mitigation activities and increases in due diligence and other fees resulting from portfolio acquisitions in the second quarter.

The correspondent lending segment pretax earnings for the second quarter totaled $12 million, a 17% quarter-over-quarter increase. The corresponding earnings are driven predominantly by the volume of purchases and commitment to purchase or locks, conventional loans. In the second quarter the volume of loan purchases totaled 3.4 billion of which 1.8 billion were purchases of conventional loans, a 78% increase from the first quarter of 2012. Significantly increase corresponding volume partially offset by small declines in margins drove the segment necking on mortgage acquired for sales to $18 million in the second quarter compared to $13.4 million in the first quarter of 2012. PMT also receives a sourcing fee of three basis points from PLS in connection with FHA loan since PMT is not licensed to securitize and therefore transfers them to PLS for disposition.

Interest income from correspondent lending was $3.2 million for the second quarter as the growth in production increased the averaged balance of mortgage loans and inventory compared to the prior quarter. Loan fulfillment fees paid to PLS reached to $7.7 million in the second quarter and are recognized when the loans are sold.

These fees cover a wide array of expenses ranging from infrastructure and relationship development due to the processing, quality control, technology, hedging, underwriting, funding packaging and ultimate sale of the loans.

Now let’s turn to slide seven and discuss the loan purchase activity of our correspondent business. Correspondent loan purchases were $3.4 billion in the second quarter; an 88% increase in the first quarter and second quarter lock volume totaled 4.6 million. Conventional funding volume reached 1.8 billion with locks totaling 2.7 billion. Our jumbo production continues to be minimal however we do have the capabilities in place to purchase significant volumes of jumbo loans as market demand ultimately returns. In the third quarter to-date total correspondent purchases have reached 3.9 billion in UPB through August and the volume of locks have reached 5.1 billion. Conventional loan purchases comprised approximately 58% of total loan purchases for the quarter to-date.

August was a particularly strong month due to the fact that’s it's at the end of the traditional summer home buying season and had 23 business days as well. Given the markets and our strong capabilities we've achieved our stated third-quarter target of $2.0 billion in correspondent loan production. Having raised additional capital to facilitate growth we are well-positioned to revise our year-end monthly activity targets for new loan commitments, locks to $3 billion per month which should produce loan purchase volume in the neighborhood of 2.5 billion in UPB.

The solid upper trajectory of the correspondent business reflects our client focused model which is been instrumental in allowing the business to grow at its current pace. We're taking a differentiated approach to this opportunity and are being very selective in our business partner approval to sellers. The client focus model (inaudible) is mutually beneficial and meaningful relationship with each of our correspondent customers and we believe that most of our customer base will continue to grow market share, increasing our opportunity to grow as well. In response to increasing demand from business partners on the East Coast, PLS which surveys as PMTs fulfillment provider and servicer and the entity where the correspondent operations reside, has opened an operations facility in Tampa, Florida that occurred earlier this year. This facility houses fulfillment personnel and allows us to provide a more efficient level of service to our Eastern and Central time zone customers and thus expand our footprint.

The correspondent loans we purchase are sold in the securitizations we retain mortgage servicing rights or MSRs for these loans which we view to be an attractive investment given their solid return profile. On slide eight, we show the impressive growth trend that PMTs originate MSR portfolio. This portfolio has been produced in a low interest rate environment and is relatively low prepayment expectations which results in a longer estimated life. MSRs are also afforded favorable deferred tax treatment which allows for tax recognition of the loan sale gain over the life of the asset.

MSR creation is a function of the sale and retention of the right to service the underlying mortgage loans. The MSR value is estimated through a process which incorporates PCMs proprietary model and experience in valuing the asset. Our valuations are then benchmarked to third-party surveys and other market inputs. In the second quarter, PTM capitalized MSRs on commercial mortgage loans sold during the quarter at an average rate of 110 basis points, the UBP of mortgage loan sold during the quarter totaled 1.54 billion and the weighted note rate of the loan was sold 4.02%.

We are actively pursuing bulk MSR acquisitions and we believe that PMT through PLS is uniquely positioned with a scalable infrastructure and expertise that make bulk acquisitions make attractive investments for PMT.

Turning to slide nine, we take a look at our distressed loan investments, a portion of the capital from our recent equity rates will be used to purchase 452 million UBP of non-performing home loans which is our largest distressed home loan purchase since the first quarter of 2011.

This amount is in addition to the 402 million UBP of distressed home loan purchased in the second quarter. Overall the flow of distressed home loans available for sale was steady throughout the quarter with multiple sellers offering pools for sale and thus far that trend is continued into the third quarter. PCMs capital markets team is actively seeking additional nonperforming and re- performing home loan investment opportunities on PMTs behalf.

While our recent purchase was entirely nonperforming loans approximately 44% of our second-quarter acquisitions were re-performing loans and the initial borrower response has been encouraging. We will continue to pursue additional re-performing home loan investments.

Re-performing loans are loans that were previously modified and have been current for some period of time. The potential for some of these loans to refinance into the FHAs negative equity program is just one example of how PMT through PLS has the potential to realize strong returns in these pools. However, these loans have been acquired at levels which may call in loan an attractive investment opportunity even if a payoff event is not eminent.

Strategically these loans provide PMT with a cash flowing asset with the potential for increased return through refinancing or securitization. Current home loan pricing reflects the strong demand in the marketplace and increased optimism surrounding the stabilization of housing prices. There is currently strong demand for distressed home loan which is being met by healthy supply from sellers, the largest of which have reentered the market on a more consistent basis since the Attorney General Foreclosure Settlement earlier this year. The chart on slide 10 provides a quick snapshot of how distressed loans in PMTs portfolio progressing through the resolution process.

As you can see 47% of the UBP, PMT acquired in the first quarter of 2010 remains in the portfolio at the end of the second quarter mean that over half of the portfolio is liquidated over the past two years. If you exclude re-performing loans from this ratio then the pool factor for nonperforming loans will be 34% it's consistent with our ongoing investment assumptions.

These re-performing loans also the ability to enhance the company’s returns which can be achieved to through sale or securitization to investors or to refinance.

Borrowers who remain currently eventually qualify for the FHAs negative equity refinance program which will make the loan immediately saleable. For those loans that PLS is not able to modify or bring current they will continue to work with the borrowers to progress them through liquidation which is ideally an alternative for foreclosure. We continue to see a solid flow of investment opportunities in the current market. On slide 11, we list the opportunities in which PMT is currently invested and one opportunity bulk servicing rights acquisition that we are currently pursuing but have yet to enter into a transaction.

For each of these opportunities we have outlined the range of illustrative leverage returns after servicing expenses but for corporate administrative expenses that we estimate can be derived from these opportunities. MBS and ABS investments are ones that we pursue on an opportunistic basis. We purchase MBS and ABS or liquidate these investments based upon market conditions and the availability of other attractive investment alternatives. Investment in distressed residential mortgages remains attractive evidence as evidenced by a recent agreement to purchase 520 million of UBP of non-performing loans in August which is in addition to the 402 million UBP of distressed home loans purchased in the second quarter.

While it is difficult to forecast with certainty how long the distressed home loan opportunity will last, we expect strong close to continue for the next 12 months and probably longer. Our estimates envision a population of approximately 15 billion to 20 billion in distressed home loans that have already been identified by marked participants is likely to come up for sale.

Recently we have seen a steady flow of 1 billion to 2 billion in home loan pools coming to market each month which include both non-performing and re-performing loans. In the current market most sellers have been from existing large banks that are programmatic sellers but we expect new sellers to enter the market over the next year.

The correspondent business also remains a very attractive investment opportunity; a portion of our recent capital raise is allocated growing PMTs investments in the correspondent business and originated mortgage servicing rights. In terms of the relative attractiveness of these investment opportunities on these slides, growing the correspondent business is the most attractive.

The illustrative growth return shown on the slides are the ones that we believe are achievable in a more normalized market environment. But the returns that we are currently realizing are higher than what you see here. The point is that the correspondent business provides solid investment returns both in the current environment which is particularly good and also over the long run. I mentioned earlier that the correspondent business is undergoing a transformation and that transformation benefits PMT because of the capabilities through PCM and PLS to effectively compete and grow.

Lastly I want to mention the opportunity we see in acquiring season agency mortgage servicing rights through bulk purchases. I mentioned earlier that banks may be looking to sell MSRs for several reasons and we believe opportunities to acquire bulk servicing rights will exist for the foreseeable future. This is an investment activity that we are currently pursuing that these types of deals can take time and until significant complexities. PMT through its servicer PLS has a scalability and experience which places it in a select group of servicers that have the capabilities to accommodate a sizeable bulk servicing acquisitions. These capabilities include the origination ability to recapture a portion of an MSR portfolio prepayment activity particularly those loans eligible for HARP 2.0 refinancing.

We are encouraged by the current market dynamics and we see significant opportunities for investment in these areas. As the market continues to evolve toward the new normal we anticipate that opportunities for PMT and residential mortgages will continue to emerge. Now I would like to quickly review the key takeaways from my presentation. PMT second quarter results demonstrate the strength of its business model strategy as well as the solid operational execution of both PCM and PLS. Both of our segments delivered record pretax earnings as they continue to grow their volumes.

Our correspondent business continues to increase volume of purchases and facilitate continued investment in MSRs has built its seller relationships. As that segment moves ahead the continued and growing relationships with our correspondent business partners will help to deliver steady and reliable growth. We continue to deliver on the goals that we set is evident by reaching our target of 2 billion in loan purchases per month. Our investment activities also delivered solid returns driven by outstanding liquidations and modification performance. As we look ahead there are significant opportunities in the market. In fact we are seeing more opportunities to say than we have at any other time over the past three years.

We believe that we are in the midst of a unique window of opportunity for the mortgage market and believe that PMT is well positioned to capitalize on these opportunities. Thank you.

Question-and-Answer Session

Unidentified Analyst

On the debt side can you help us understand what kind of leverage you take in both sides of the business, meaning CLG and IMPL?

David Spector

So on the IMPL side of the business our leverage is running about 1.02 to 1, we have three credit facilities and we are utilizing all three and the advance rate of those facilities ran as I 50% given the one to one ratio. The reperformers run a little bit higher.

On the CLG side, you know typical leverage ratio is anywhere from 10 to 15 to 1. Right now we are running closer to one 10 and maybe even slight of 10 and that’s a function of the NBS market that we are in today, with the high prices of Fannie Mae or Ginnie Mae securities, the advance rate is capped out typically at some level slightly below par. So that keeps the leverage down in the 9 to 10 range. On our MSRs we don’t have any leverage on our Fannie MSRs. We continue to look and feel encouraged by the potential to bring MSRs into that investment as well.

Unidentified Analyst

David for the first half of the year the pretax income associated with the origination business was pretty well in excessive of 25% and we have had this conversation before about the limitation of non-qualified REIT income to maintain REIT status. Could you gives us a roll up on the assumption of the origination business continues growing if the pace that it has, how the company plans to maintain REIT status and to the extent you sort of deleted the REIT structure side between 1Q and 2Q, is that a harbinger of something we should anticipate occurring in the next let’s couple of quarters or the end of the (inaudible) year.

David Spector

No I think that given where our balance sheet is today and given we are buying non-performing loans and re-performing loans versus the correspondent activity we feel pretty good about being able to continue to operate as a REIT. I think that there are if we have issues at the end of the quarter maybe try to meet REIT test, we can always buy residential MBS, we put on a little bit of trade at the end of last quarter. But I think that given our current operating platform, given the capital raise. We feel good about operating as a REIT.

Andy Chang

I mean we look at all the various tests and qualifications to be a REIT. I will tell you that historical the constrain that we bump up against is the asset test. We feel like we are in good bounds with the income test and happy to walk that through with you but the asset test, we recognize that we are a bit unique among mortgage REITs and running a fairly sizeable package of REIT subsidiary. We think that this kind of a hybrid REIT structure that we have, their benefits to shareholders there is obviously great tax efficiencies from the distressed investments and the qualified REIT income and assets in that business but it is something that we continue to evaluate and as David noted I think for the business that we have now and for the foreseeable future we look at this sort of hybrid REIT structure as optimal.

Unidentified Analyst

You mentioned on slide seven you are raising your UBP monthly loan purchase target what was it before?

David Spector

So we initially set a target of 2 billion and we moved that to 2 billion by the end of the third quarter and we are raising our purchase assumption to 2.5 billion by the end of the year.

Unidentified Analyst

So was it 2 and now you are going 2.5?

David Spector

Yes

Unidentified Analyst

And is that 2 at the end of the quarter?

David Spector

So the goal was 2.0 billion at the end of the quarter we achieved that in August and we are raising now what we are saying by the end of the year we look to be at 2.5 billion.

Unidentified Analyst

Okay and that leaves me to my second question. If Bernanke begins targeting MBS program and launched a new (inaudible), can you just walk us through how Fannie Mae would be impacted?

David Spector

So the way I think I about it is any activity that increases production benefits PMT from the point of view that that production is going to be originated across the broader array of originators throughout the country and many of those originators have correspondent relationships with PMT that they are going to sell the loans to PMT and so whether it's a REFI Boom or a refinance program or some widening of credit guidelines where we participate isn’t just in the purchasing of those loans and the retention of the MSRs.

Unidentified Analyst

And then one follow-up, your gain on sale, what are the gain on sales price you are seeing right now?

David Spector

So you know in terms of basis points it's not something that we haven’t really touched up. I can say that they are at historical wide’s and it's something that we can as we move forward in a financial reporting sense we can begin to look at, we have some type of disclosure on those.

Unidentified Analyst

Relative to prior presentations it seems like you guys had a little bit more emphasis on acquiring servicing portfolios, agency servicing portfolios, is it my head or was that your intent to say that you are more closely looking at the business relative to say three months ago, four months.

David Spector

No I think we spent a little bit time on it today because it's a question that’s come up throughout the conferences. In this world today we see others in the residential business who are participating in businesses that we are not and I just think that it's worth noting that we have had this slide up through the year and we have had this on the slide, it's just the way of saying that you know we look at certain of these portfolios. There are certain types of portfolios; we would look at versus not look at. We look at a portfolio of agency MSRs, where we don’t take on the Rep & Warrant risk. We would have a good refinance opportunities versus the private label portfolio which is not something that as you know from the beginning we have stayed away from. I do think I say that our correspondent business in of itself is a bulk MSR business, when you look at the volumes we are doing we are adding $15 billion to $20 billion a year conventional MSRs before any runoff.

But it's just these are just the opportunities that we look at PCM and managing PMT.

Andy Chang

I will just add to that briefly that I think there has been considerable market chatter about legacy MSR opportunities and we felt compelled to sort of talk about our how we see them, we view legacy bulk MSR acquisitions as a potentially nice bolt on compliment to some of the other opportunities we see to deploy capital. Our business model isn’t dependent on or contingent on the ability to invest in legacy bulk MSRs that said there are certain of these opportunities which we look at and we have looked at over the last year that we think are attractive investment opportunities, that could be accretive investment opportunities for PMT and that we will continue to do the work and potentially put capital work in one of these opportunities in the near future.

Unidentified Analyst

Given the capital raise, how much ability do you have to buy further loan packages I mean I don’t think you have put it out but it was public that Citi Group did sell significant portion of loans to, they put that or (inaudible) has that out. So can you just talk about just acquisitions going forward?

David Spector

So as I mentioned earlier that package was used, we used the proceeds from the acquired offering to buy that package. There are other opportunities in the marketplace that we continue to bid on. We believe that we have the dry pattern necessary to purchase more non-performing loans and I think that the getting to the correspondent business has cash requirements also such that as non-performing loans liquidate we need to fund that business as well. So I think as we said in the offering that use to proceeds will be quickly deployed and because of the equity raise we feel comfortable moving the correspondent business up, we obviously had a package in hand and we continue to have the ability to use some of our other facilities like our forward trade facility if we bought a package. So we feel good about participating in the kind of in the near term calendar of loans are coming out to sale.

Unidentified Analyst

I was hoping you could provide a little context around how big you see the bulk servicing opportunity and I think in the last call (inaudible) mentioned they had like 400 billion of opportunities they were tracking on top of ResCap, are you guys looking at kind of a much smaller subset than that or is it like somewhat different niche it's kind of putting the size of that.

David Spector

I don’t view, the way I look at bulk servicing is more on a portfolio by portfolio basis. We have two businesses one is investment activities, one is correspondent. I think the bulk servicing fits into the investment activity bucket. I think that if a portfolio comes up to a bid and we see all the portfolios that meets kind of the certain criteria that I mentioned you know Fannie Freddie, refinance ability, no Rep & Warrant risk. I think it's something that we are definitely interested in and we will participate in and have participated in. It is not something that I view as my way of thinking as a separate line, it's just another investment opportunity which is what these four investment opportunities illustrate on the slide that we mention.

Unidentified Analyst

And how big of a portfolio do you think you can comfortably service in portfolio, integrate on to your platform?

David Spector

I think our platform is very scalable, we have a very experienced managed team. As we look at our in terms of current capacity it's in the 10s of billions of unpaid principal balance.

Unidentified Analyst

And then switching to your home loan investments, were are you seeing loss adjusted yields right now, how much of those moved in the last couple of months.

David Spector

I think that when we started out in this business and I am talking about gross yields after taking into account the cost of servicing. We were seeing yields in the mid-teens I think we have seen those coming slightly in the 30ish 40ish range, I think it's very specific to the portfolios that you are bidding on. I think there is some real issues in terms of the percentage of the portfolios, in judiciary stage versus non- judiciary. I think it's a question of how far down the foreclosure path of portfolio is. The question is who is the seller, is there opportunities to get a modification or refinance and so I think that’s where we start to see yield differentials. Is it a bankruptcy auction with no Reps & Warrants, is it clean up trade of a small regional bank or is a programmatic (ph) seller that you get geographical distribution.

So I think that’s where you start to see kind of yields kind of swing but I think and those are on levered yields and I think when you layer in the fact that you know some people have non-performing loans and that you are starting to see some securitizations, you may see those tighten a bit but we have seen the trade they are a pretty tight band.

Unidentified Analyst

Okay and then just finally any implications you see for your ultimate loss just yields on investments you have already made from the positive trends that you noted that you are seeing in liquidation was like stabilizing values?

David Spector

So I think that given the fact that we have gotten through the attorneys general settlement given the fact that the regulatory issues surrounding this event and crisis have kind of subsided I think that extension of foreclosure timelines that we saw last year are pretty much have been seen and how we value our loans, it is on a fair value basis. I think as we talked about homes are kind of skipping across the bottom, you know in some cases is appreciating again it's kind of been seeing in how we markup loan. So I think we feel that we are achieving the benefit of what we are seeing in the marketplace and I think that we just got to continue to work through the loans and get them to their ultimate disposition whether it's liquidation or whether it's a refinance and/or sale.

Any other questions? Okay well thank you very much for your time today. We really appreciate it.

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