Redwood Trust's (RWT) CEO Chris Abate on Q4 2021 Results - Earnings Call Transcript

Feb. 09, 2022 10:27 PM ETRedwood Trust, Inc. (RWT)
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Redwood Trust, Inc. (NYSE:RWT) Q4 2021 Earnings Conference Call February 9, 2022 5:00 PM ET

Company Participants

Kaitlyn Mauritz – Senior Vice President of Investor Relations

Chris Abate – Chief Executive Officer

Dash Robinson – President

Brooke Carillo – Chief Financial Officer

Conference Call Participants

Bose George – KBW

Don Fandetti – Wells Fargo

Stephen Laws – Raymond James

Kevin Barker – Piper Sandler

Doug Harter – Credit Suisse

Eric Hagen – BTIG

Steve Delaney – JMP Securities

Operator

Good afternoon, and welcome to the Redwood Trust Fourth Quarter 2021 Financial Results Conference Call. Today’s conference is being recorded.

I will now turn the call over to Kaitlyn Mauritz, Redwood’s Senior Vice President of Investor Relations. Please go ahead, Kaitlyn.

Kaitlyn Mauritz

Thank you, operator. Hello, everyone, and thank you for joining us for Redwood’s fourth quarter 2021 earnings conference call. With me on today’s call are Chris Abate, Redwood’s CEO; Dash Robinson, Redwood’s President; and Brooke Carillo, Redwood’s Chief Financial Officer.

Before we begin, I want to remind you that certain statements made during management’s presentation today with respect to future financial or business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual results to differ materially.

We encourage you to read the company’s Annual Report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company’s performance and could cause actual results to differ from those that maybe expressed in forward-looking statements.

On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our fourth quarter Redwood review and investor presentation both which are available on our website at redwoodtrust.com.

Also note that the content of this conference call contains time-sensitive information that is accurate only as of today. Redwood does not intend and undertakes no obligation to update this information to reflect subsequent events or circumstances. Finally, today’s call is being recorded and will be available on our website later today.

I will now turn the call over to Chris Abate, Redwood’s Chief Executive Officer for opening remarks.

Chris Abate

Thank you, Kate, and good afternoon, everyone. Thank you for joining us here today. 2021 was a truly transformative year for Redwood in reflection, we are extremely proud of our team and the continued progress we made throughout the year. We generated record performance within our operating companies, as they continued to profitably scale.

In addition, we executed on our capital deployment strategies while also advancing key strategic objectives and technology and product development. Our performance reflected dedication, discipline, and great collaboration across our enterprise. This is only possible because of our people. I’m proud to say we’ve maintained a retention rate for employees that have significantly outpaced published averages for the financial services sector in 2021.

In all of this helped us establish ourselves as the leading operator and strategic capital provider and housing finance, the heart of our corporate vision. Quickly recap our quarterly performance for the fourth quarter, which Brooke will cover in much greater detail. We generated GAAP earnings of $0.34 per diluted share and book value increased to $12.6 at December 31, a marginal increase over the third quarter.

We increased our dividend to $0.23 per share in Q4 of 9.5% from the third quarter, this was our fifth dividend raise over the last six quarters. On the year, we delivered a 25% return on equity, a 30% economic return and a 60% total shareholder return. These numbers do not exist in isolation and are a clear reflection of our potential to generate durable earnings through complementary operating businesses and our investment portfolio.

We have long positioned our platform to be flexible as the interest rate environment evolves and this readiness positions as well to navigate the current market. But the country is still struggling to turn the page on the COVID-19 pandemic, the broad based economic recovery many had expected by now has been elusive. Meanwhile, inflation has reached a 40-year high and an aggressive response by the Fed signals the end of a decade plus of accommodation.

Higher benchmark interest rates are no longer a prospect or probability, but a reality as yields recently reached their highest level since 2019. Markets have been volatile to start the year and we expect that to continue as the Fed embarks upon a series of anticipated great hikes. As a housing finance company, we incur many of the same challenges as other market participants, but Redwood’s business model has never been beholden to low benchmark interest rates, government subsidies, quantitative easing, or a steep yield curve.

In fact, the last time the Fed began a rate hiking cycle in late 2015 Redwood’s book value grew, and we delivered a total economic return of 35% as long-term rates rose and yield curve compressed. Today, our model has evolved even further to include revenue streams, less correlated with the path of benchmark rates.

Great example of this was our expansion into business purpose lending in 2019, where we gained access to a growing cohort of housing investors, taking the refurbish and stabilized antiquated housing stock. Our BPL business provided immediate balance and depth to us across a variety of interest rate and credit scenarios, depth that has only expanded since we first entered this business. As our shareholders have grown to know business purpose loans are primarily either floating rate for the life of the loan or rate locked just ahead of their funding effectively eliminating the interest rate exposure, many mortgage businesses incur in managing a pipeline of consumer residential loans.

Given the outlook for housing, including rising home prices, falling inventory, and increased demand for us of our products, we are very optimistic about the outlook for this business, including volumes and ROEs for the segment even as rates rise. Complementing our BPL team’s performance in the fourth quarter was that of our investment portfolio team, which also took advantage of rising rates and wider credit spreads to deploy capital strategically at attractive entry points.

We deployed $222 million of capital in the new investments in the fourth quarter by far the most we have deployed since the pandemic began. This included approximately $130 million in third party investments, important validation of our team’s ability to flip the script on challenging market conditions by acquiring bonds at sale prices. Importantly and fundamentally, our portfolio remains strong and credit performance in our assets continue to improve as indicated by flattening or declining delinquencies across the portfolio.

Our Residential business faced the brunt of broader market headwinds in the fourth quarter, but in a testament to the team still managed to outperform most if not all in the sector. We took a conservative posture to risk management late in the year, prioritizing healthy margins, the high end of our historical range over higher volumes as we observed a lot of loan inventory pressure and credit spreads and margins heading into year-end. Certainly 2021 witnessed some of the highest origination volumes that the market has experienced in decades.

And our platform kept up with this demand while also avoiding the over-hiring that is typical of the mortgage industry. During the year, we locked a record number of loans, as well as distributed them quickly and efficiently into the market for our best-in-class securitization and whole loan sale platforms, something Dash will elaborate on further. But the headwinds we faced in Q4 were an only market related. News out of Washington created some noise as well. The recent LLPA increases in high balance loans and loans and second homes, but forth by FHFA acting director, Sandra Thompson were bold move following the conforming loan limit changes at the end of November.

These fee increases are the clearest acknowledgement yet the government subsidies for certain parts of the mortgage market are unnecessary when the private market continues to serve them efficiently. By focusing GSE capital and resources, where there are needed most, the FHFA is achieving some very important objectives.

One, greater support for the GSEs mission driven activities, two, increase safety and soundness, and three, the continued crowding in private capital, particularly in areas where our specialized underwriting and loan administration expertise more effectively serve home buyers. As a leading partner to the GSEs and a leading voice for quality and innovation and housing finance, we applaud this move by the FHFA.

Finally, I would be remiss not to highlight the continued progress from our RWT Horizons initiative. We’re quickly nearing the one year anniversary of launching Horizons, which most of by now as our homegrown venture investment strategy, which is geared at investing in early stage financial and real estate technology companies. We believe this business is poised off for meaningful alpha in 2022, as our portfolio of companies advance their strategic goals with our support and grow enterprise value. From day one, Horizons has demonstrated Redwood’s firm commitment, supporting technology that enhances the housing financial industry’s ability to serve consumers and investors.

Before I hand the call over to Dash, I want to reiterate the unique positioning that Redwood is in not just in today’s markets, but going forward. Certainly volatility will persist, but we see a number of supportive tailwinds for our business. When I consider our strategies, our operating companies and our investment portfolio, we are excited about our ability to navigate and perform through these markets to deliver for our shareholders.

And with that, I’ll turn the call over to Dash Robinson Redwood’s President to discuss our operating results.

Dash Robinson

Thank you, Chris, and good afternoon, everyone. As Chris mentioned, the fourth quarter rounded out a very impressive year for Redwood and I will focus my remarks on framing our recent performance in the context of current market conditions and how we believe our balanced business model will continue to create value for shareholders. As interest rates rise and volatility touches more segments of the market, it is natural to think back to the last time we were in this part of the cycle, namely from late 2015 through the middle of 2019.

The period during which the Fed last hike rates witnessed its own bouts of volatility, in some cases, backdrop by significant geopolitical conflict. The 10-year treasury yield crap north of 3% in late 2018 impacting mortgage production volumes and leaving the industry with substantial excess capacity. The tenure, of course, hasn’t been close to 3% since, but as policy makers once again grapple with inflation now amids an ongoing health pandemic.

It’s helpful to ask what’s changed since the last time. For Redwood, the answer is quite a bit. While our operating model and investment portfolio have always been designed to outperform through a full interest rate cycle, our business model now covers a much broader landscape of housing finance. We have products suited for owner occupants and housing investors like a critical balance, given the path of home prices and persistence supply demand dynamics.

We are also emerging as a leading innovator in finding new ways to help consumers tap into the equity in their homes. As Chris mentioned, key to our diversification strategy has been our entry into the business purpose lending space and CoreVest, our BPL platform continues to raise the bar recently, setting a series of funding records in quick succession, $340 million in December, $733 million in the fourth quarter and $2.3 billion in 2021 overall.

Full year funded volumes were up over 60% versus 2020. And as year-end approach, we began to see further balance in our production mix. Funded volume during Q4 was split evenly between single family rental and bridge. The latter of which increased 50% quarter-over-quarter, driven by growth in multifamily where funding’s double versus Q3 and the launch of our effort to source loans from third-party originators, which during the fourth quarter represented over 10% of total funding.

Single family rental production declined slightly in the quarter due largely to a handful of transactions extending their closing timelines, many of which already closed in January. In fact, January fundings overall for CoreVest exceeded $300 million, CoreVest strengthen leadership in the market lies in part and its ability to reliably serve its client base as evidenced by a repeat customer rate consistently about 50%.

And while Q4 tends to be a seasonally strong quarter for the BPL business, CoreVest also enters 2022 with a significant pipeline of activity. And we remain excited about volume outlook for the business. Prevailing industry dynamics, most notably consistent demand growth for single family rentals continue to attract more equity capital to the space that we believe will sustain even as rates rise. We have recently witnessed a notable increase in demand within our client base evidence by higher funded volumes across all products, particularly in the build for rent and multi-family sectors.

Align with Redwood’s overall corporate mission, our lending activities and BPL continue to support the construction and stabilization of high quality and accessible rental housing stock, benefiting renters and local communities alike. In short, we believe the importance of BPL products to the housing market has never been higher. Growth and distribution must go hand in hand and such was the case in the fourth quarter as CoreVest distributed over $500 million of SFR loans, including a $304 million traditional capital securitization and a $202 million whole loan sale.

We also contributed additional loans to in our inaugural bridge loan securitization completed in the third quarter, which as a reminder has a 30-month replenishment feature. We expect to explore executing additional transactions of this type during the first half of 2022. The recent path of home prices has also made access to private label mortgages important for consumers in more parts of the country than ever before.

As Chris noted, our residential business set a few records of its own in 2021 in the fourth quarter capped off a historic year for the platform, funding close to $13 billion and locking approximately $16 billion in loans. During the fourth quarter, purchases totaled $3.2 billion and locks totaled $2.8 billion as the business positioned itself accordingly in the face of significant volatility during the last few weeks of the year.

Gross margins for the quarter were 90 basis points at the high end of our historical target range. Locks in January were 15% above December lock volumes and February is off to a strong start, including the acquisition of several bulk packages from origination partners. More than ever the depth of our distribution channels and our ability to move risk quickly and efficiently remains a key competitive advantage.

Last year’s record volumes and residential certainly benefited from macro tailwinds, but also reflect the platform operating at peak efficiency. In 2021, we funded loans from our sellers an average of 12 days, 50% more quickly than just two years ago and faster than any of our peers. Our rapid funding program recently eclipsed $1 billion in transaction volume, and we are primed to reengage the market on agency eligible products.

Most notably, higher balanced loans where we believe the private markets will once again offer superior execution for consumers. Over the years, we have consistently demonstrated the ability to support our origination partners as markets evolve and are currently poised to go deeper with our seller base than ever before. As testament to our distribution strength in late January, we completed our first Sequoia transaction of 2022 size that approximately $680 million of principle balance and price significantly tighter than other RMBS deals concurrently in the market.

Looking ahead, we expect a year of transition for the consumer residential mortgage market overall. Refinance volumes will be lower due to rising rates and if past this prologue will trigger contractions for originators with excess capacity until margins stabilize. Our activity in the still resilient purchase market has represented 60% of our volume over the past few quarters, an area of continued emphasis for us.

We also expect a renewed focus by originators toward expanded credit products in 2022, who assist home buyers who are likely to experience declining purchase power as mortgage rates rise. We’ve been actively preparing for this market shift for months, especially as more geographies across the country become non-conforming, where access to home ownership will rely on private label products, such as ours, and to reiterate Chris’s point while last year’s substantial home price appreciation had a proportional impact on GSE loan limits, the recent adjustments to the GSE’s pricing regime for certain high balance and second home products will be an important driver of preserving private capital of influence, including Redwood in the parts of the market, where it is most impactful.

Our investment portfolio took full advantage of the fourth quarter’s volatility as Chris referenced, deploying $222 million of capital overall. The investment mix included agency CRT bonds and a fresh flow of home equity investments or HEI through our arrangement with Point Digital. We also completed the acquisition of additional season excess servicing rights from securitizations issued pre-2008 through an existing joint venture.

As a reminder, given the highly seasoned profile of the underlying loans, this investment is less interest rate sensitive and more driven by borrower cure rates. The joint venture also provides several unique adjacent opportunities over the next few years related to calling certain of the underlying securitization transactions, a separate effort from our ongoing work in calling our jumbo and SFR securitizations.

We have been waiting for an environment like today’s to deploy our investible capital and continue to find ways to raise additional capital accretively, including through the innovative distribution avenues, unique to Redwood that I highlighted previously, in order to remain opportunistic, while also funding near-term capital needs for our operating platforms.

Overall, fundamentals in our investment portfolio remain strong, as overall delinquencies remain low and still elevated pre-pay speeds, unlock more opportunities to call transactions as Brooke will discuss further. As Chris highlighted earlier, the fourth quarter capped off a productive inaugural year for our horizons initiative. We completed five new investments during the fourth quarter, including the first two investments through our partnership with frontiers capital and our first follow on investment in an existing portfolio company.

At December 31, 2021, the horizons portfolio included 15 investments overall in companies with a direct nexus to our operating platforms. Life to date deployment for horizons is approaching $25 million and our goal remains by the end of 2022 to have $50 million to $100 million of capital committed to an increasingly diversified portfolio of primarily early to mid stage companies.

Since launching RWT Horizons, we have strived to imagine how business gets done in the non-agency housing market and emphasized innovation in all that we do. In addition to encouraging progress at each of our portfolio companies, we continue to see tangible benefits within our businesses and networks. Liquid mortgage’s blockchain technology is now live for five Sequoia transactions, including our most recent issuance in January, allowing investors access to reliable real time information on underlying loan remittances.

We believe our recently completed HEI securitization with point is a critical first step to bringing standardization to diffuse and potentially large asset class. Other emerging touch points include assessment of tech enabled construction management platform built by one of Horizon’s early portfolio companies and several data analysis initiatives that we believe can drive our business intelligence efforts. One year on, in many ways, the fund is just beginning, especially as we assess strategic overlaps amongst our portfolio companies that may yield new and unexpected innovations.

I will now turn the call over to Brooke Carillo, Redwood’s Chief Financial Officer.

Brooke Carillo

Thank you, Dash. The powerful combination of our complimentary segment produced historic operating and financial results in 2021. As Chris highlighted in his remarks, in the fourth quarter, we reported GAAP net income of $44 million or $0.34 per diluted share, delivering a 13% overall annualized return on equity for the quarter. Our book value per share increased to $12.06. And during the quarter we announced our fourth consecutive dividend increase up nearly 10% to $0.23 per share or more notably up 64% on the year.

In terms of full year results for 2021, we earned $2.37 per diluted share, our GAAP ROE was 25% and book value grew 22%. The growth in both our dividend and our book value led to a 30% total economic return on the year.

I’ll begin with our segments, which were realigns this quarter to reflect how we are managing and evaluating the business. We believe the new segments clearly present the distinct contributions of our operating businesses and our investment portfolio and how they drive value for the overall company. At year end, approximately 70% of our capital was allocated to the investment portfolio with the remaining 30% towards our mortgage banking platforms, which was roughly unchanged in the quarter.

We saw several highlights from our Business Purpose Mortgage Banking segment. As Dash mentioned, CoreVest had a record quarter for volume up 15% quarter-over-quarter, ending a year where we saw continued growth in funding volume and growth in new products, which has continued into 2022.

The segment’s fourth quarter adjusted return on capital was 29% compared to 43% in the prior quarter. The decline was primarily driven by widening securitization spreads on SFR loans, as we approached to year end, which negatively impacted the pricing of the pipeline relative to Q3.

The Residential Mortgage Banking segment generated a 10% return on capital during the quarter compared to 26% in Q3, primarily due to lower loan lock volume. Additionally, during the fourth quarter, we saw pressure on our gain on sale margins as heightened interest rate volatility resulted in higher hedging costs and our pipeline was impacted by widening spreads.

However, we proactively managed our volume in order to preserve profitability, and we are able to maintain margins at the high end of our historical 75 to 100 basis point range and near the levels we saw in Q2 2021. As Dash mentioned, our declines in volume were largely driven by seasonality and our view of the risk reward trade-offs going into year end, given volatility and uncertainty related to monetary policy.

Our discretion is beginning to pay dividends and that we enter this most recent period of volatility, carrying light inventory as over 90% of the $1.7 billion of residential loans on balance sheet at 12/31 have been sold or committed to be sold or were securitized as of the end of January.

The Investment Portfolio segment also contributed another strong quarter, generating additional positive investment fair value changes from our RPL and CoreVest SFR securities. Following $122 million of investment fair value changes we experienced through the end of the third quarter, the $8 million increase in Q4 reflects further improvement in credit performance across the book.

Our investment portfolio delivered 17% adjusted return on capital in the fourth quarter, compared to 13% in the third quarter. As we have mentioned, we had an active quarter deploying $222 million of capital towards new investments. We also settled call rights on both CAFL and Sequoia securitizations, acquiring $79 million of loans at par, which brings us to nearly $300 million of total loans called in 2021. As we amass these seasoned loans on balance sheet, we have several financing outlets we are exploring to optimize our capital and execution.

Turning to the income statement, net interest income was positively impacted by the robust deployment within our investment portfolio, leading to a higher average balance of investments and a 20 basis point lower average cost of funds on a bridge loan financing as we experienced a full quarter benefit from the bridge securitization and the warehouse line improvements we implemented in Q3 2021.

Additionally, net interest income also benefited from higher accretion on our available for sales securities with assumed near to intermediate prospects of being called. Looking ahead, net of the fourth quarter gains remains potential upside of roughly $2.73 per share in our portfolio through a combination of premium from callable loans and book value upside from discount securities as underlying performance continues to improve.

We currently estimate around $700 million of Sequoia loans could become callable through the end of 2022, which we have arrived lower quarter-over-quarter, giving slowing estimated prepayment speeds attributable to higher rate. Importantly, our commitment to responsible growth remains well-paced. Despite the record volume we’ve achieved this year, our portfolio remains fundamentally sound given our disciplined underwriting, the tailwinds of double digit home price appreciation nationwide, robust economic growth and favorable labor markets.

We continue to experience stable to improving delinquencies across our portfolios. And despite the recent uptick in rates, average coupons in our residential portfolio remain in excess of current mortgage rates. So while prepayments have fallen from their 2021 peaks, they remain elevated, which is continued positive for our credit investments.

Switching to our funding structure, we maintained excellent strength in our capital and liquidity position at December 31 with $2 billion of total capital, including unrestricted cash of $450 million, which represented over 50% of our marginal build that exposure.

Our available capital for investment decreased to $150 million at year end driven by our largest quarter of deployed capital since 2019. Our recourse leverage increased slightly to 2.4 times compared with 2.2 times in Q3 as we utilized approximately $240 million of incremental warehouse debt to finance a higher balance of residential loans and inventory at year end. We continue to balance our warehouse funding capacity between marginable and non-marginable facilities, growing overall warehouse capacity by 14% to $4.6 billion and our non-marginable warehouse capacity to over 65% of total capacity.

Additionally, we maintained a conservative risk posture in our investment portfolio with over 85% of the debt funding of our $2.7 billion portfolio of assets, it’s either funded with non-mark-to-market or recourse debt. Relative to the third quarter, general and administrative expenses decreased as variable compensation declined commensurate with earnings, given the strong alignment of our pay programs with performance. While acutely focused on expense management, our absolute expense levels did rise in 2021 as we continue to invest in our people and capabilities to grow our franchise.

However, different efficiency ratios such as pre-tax margin and operating expense as a percentage of GAAP net income have improved relative to the prior few years, demonstrating the scalability we’re creating within our own platform. Given the changing tone of the Fed and impending rate hikes, I want to expand upon some of our opening commentary around rising rates to make a few points about Redwood’s financial drivers.

We have built a company with complimentary and resilient earning streams that are intended to operate and deliver across changing market environments. Relative to the last hiking cycle Redwood experienced, today, over 30% of our capital is allocated to business purpose lending activities and assets that sit in our investment portfolio, which exhibit lower interest rates sensitivity as Dash mentioned earlier.

In fact, over 90% of the $2.7 billion of assets in our investment portfolio are subordinate securities, bridge loans and other investments that have limited impact to values from rising rates. We also hedge much of our exposure to interest rates on our loan pipeline, so hedge costs increase in volatile rate environments like we saw in the fourth quarter. And our funding structure limits the impact to net interest margin from rising rates and our margin exposure mitigating the impact to both profitability and liquidity.

In addition to the fact that approximately 80% of our corporate funding from our convertible debt is fixed rate, approximately a third of the financing in our investment portfolio, which drives a significant portion of our net interest income has fixed rate terms that extend more than a year. Of the remaining two-thirds, over 90% funds either are bridge loans or are called Sequoia loans, which we expect to securitize in the next few months.

The vast majority of our bridge portfolio is floating rate, meaning we’ve locked in that asset spread or have a weighted average life of less than a year on those assets. Our speed to market and the depth of our distribution channels is a differentiator from risk management perspective in markets like today. Redwood continues to turn collateral 2 to 3 times faster than the competition with a weighted average loan age of zero to one month on our residential securitization compared to others in the market where three to four months.

Before I conclude, I wanted to address some enhancements and changes that we will be making to our package of reporting materials shared with the market each quarter. Since the firm founding in 1994, Redwood’s commitment to thorough disclosure has been second to none. The centerpiece of this tradition has been the Redwood review, a unique document that blends personalized outreach for management with rich detail about our recent results and current financial conditions.

As we expand on scale our company, the transparency and utility of our disclosures must keep pace. As such, we have sought and assessed input on our financial reporting and have decided to make some changes that we will believe, will make it easier for all of our stakeholders to digest and evaluate our results. This will be the last quarter we will present the Redwood Review in its current form and have instead augmented our other disclosures, particularly the enhanced quarterly earnings related investor presentation, which will assume the Redwood Review name going forward. We outline these changes in detail in this quarter’s Redwood Review and we thank you for your valued feedback.

With that, I would like to turn it back to the operator to open the call for Q&A.

Question-and-Answer Session

Operator

Thank you. At this time, we’ll conduct our question-and-answer session [Operator Instructions] Our first question comes from Bose George with KBW. Please state your question.

Bose George

Hey, everyone. Good afternoon. Actually first, just in terms of residential gain on sale margin trends, how are they looking in the first quarter to relative to what you saw last quarter?

Dash Robinson

So Bose, they’re still within our historical long-term range, probably a bit closer to the lower end than the 90 basis points that we had in the fourth quarter. Just a couple points of insight in terms of what we’re seeing in the market right now, obviously there’s been a fair amount of interest rate volatility year-to-date. A couple things, we have been able to consistently leverage our speed and brand to enhance our execution in general, some of the securitization executions that we’ve seen year-to-date of somewhat of a function of issuer securitizing, lower coupons amidst obviously this rate backup. So our ability to securitize more quickly, I think it’s particularly powerful in markets like this.

As a reminder, when we securitize our typical loan age is a month or less, which leads the market and really helps from an execution perspective, just to be as close to current coupon as possible when rates are moving around. The other thing just we’re observing, market wide in general with our competitors. There’s always an array of pricing strategies between some of our direct competitors, the banks, et cetera. And I think what we’re observing now is an opportunity to slot our pricing in a spot that is relatively compelling in order to drive more volume at margins that we like that are within our long-term range.

Bose George

Okay, great. Thanks. That’s helpful. And then just in terms of the investments you put to work in the third-party channel this quarter. Just curious, what the returns are like and how they compare to what you have your target rate for the – for your retained securitization investments.

Brooke Carillo

Yes. I think they differ a little bit by product, but we’re seeing really kind of mid teens returns just given the fact that we were deploying those as spreads were widening throughout the fourth quarter. So in terms of entry points, we really like the basis at which were owning the securities. So it compares favorably relative to what we had been seeing in terms of subordinated retention level heading into fourth quarter.

Bose George

Thanks a lot. Actually, just one quick one more, just book value quarter-to-date, any changes there.

Brooke Carillo

Yes. Through January, we were about 0.5% lower in terms of book value.

Bose George

Okay, great. Thanks a lot.

Operator

Thank you. Our next question comes from Don Fandetti with Wells Fargo. Please state your question.

Don Fandetti

Good evening. Thanks for the efforts to make things a little more simple. I guess to follow-up on the residential mortgage originations, is this sort of just like a market blip where you think you could get back to that $4 billion lock range per quarter? Or do you think this is like a permanent step down in the market where you’ll just be less active?

Chris Abate

Hey, Don, it’s Chris. I think the makeup of our production will change, but we’re optimistic that we can grow volume from here. We are in a state of transition in the non-agency space for certain. And I think the headlines out of the space, there’s another month to go in February of issuers clearing aged collateral. And dash mentioned, most of our – most of what we’re seeing today is new loans. But what you’re seeing securitized is or loans that are three or more, four months old or more. And a lot happened in the last three months with rates.

So I think there’s another month to go there with PLS, but what’s happening now and where we’re transitioning is to some of the changes that we’ve seen on the agency side, which is start to hit the market in April, most notably, the LLPA adjustments for second homes. You still see a lot of non-owner occupied. So I think the makeup of what you see in non-agency is going to change, but for somebody in our position, we remain optimistic that we can grow volume over time. This quarter, I think is definitely a quarter of transition. So I think we’ll have better guidance the next time we talk, but there’s a lot to like from our perspective on where the markets headed.

Don Fandetti

Got it. And I know with the September Investor Day, I think there was some guidance provided for 2022. How should we think about that now?

Brooke Carillo

I think echoing Chris’s comments about where we are just in terms of kind of being in the midst of a massive transition and in terms of all markets. We have a lot to learn here heading into March, but both with the pace of runoff, the pace of rate hike in the landscape from here. And so I think we wouldn’t want draw a straight line through what we’re seeing in terms of trends in the first quarter. So it’s early to give update on guidance. There’s a lot that remains, in terms of our long-term plan, we have a lot that remains on track with the objectives that we laid out with our Investor Day. And we’re seeing what we – I think, one thing that we’ve seen this year is if you look at the contribution of each of our segments, they ended the year almost kind of commensurate with one another all around 26% to 28% return.

And that was – that demonstrated tremendous variability between the segments, between the quarters, just given they have very different drivers of performance. And so that is something that we’re seeing with the residential business this quarter. Obviously, we – there’s a lot that we’re constructive on in terms of the investment portfolio that just generated a 17% adjusted return on the quarter. And we’re highly constructive on the BPL outlook too from here with respect to volume. So a lot remains on track, but it would be early to give an update on that guidance at this stage.

Don Fandetti

Got it. Thank you.

Operator

Our next question comes from Stephen Laws with Raymond James. Please state your question.

Stephen Laws

Hi, good afternoon. I guess, looks like the increase on the BPL side bridge about half the volume. Can you talk about that, how you expect that mix going forward between SFR and bridge. I don’t think bridge is very interest rate sensitive, but can you maybe talk about the stabilized SFR and how you’re seeing that product react any change in pricing?

Chris Abate

Sure. We really like the balance, Stephen, thanks for the question. Historically, over the past three or four quarters, it’s probably been closer to two-thirds and one-third SFR and bridge. And so we really like the balance for a number of reasons, including the historically CoreVest has been particularly adapted, turning to bridge portfolio into opportunities for SFR loans, the life cycle lender to housing investors.

So the more balance we see between bridge and SFR, we think that really organically buttress the pipeline very positively for us. In terms of the bridge opportunities, we’re doing a lot of our traditional bread and butter products, but things like lines of credit, which are cross collateralized to investors, things of that nature. We are starting to see more opportunities in the multifamily space come our way.

Having a bridge securitization under our belt from last year was a really important step, because it provides really long tenured and stable financing for us that is very efficient. And you’re right, obviously the bridge portfolio carries with it little to no duration risk just because of the nature of the loans.

On the single family rental side, we still think there are a lot of layers to peel back to fully serve that market. Our repeat customer rate in general is around 50%, which is again a good balance, because it’s the right mix between repeat customers and folks that are new to the platform and new to the space in general. Obviously, we pay close attention to benchmark interest rates. Those SFR loans are our size both to home values from a retail perspective, but also debt service coverage, obviously, we have to carefully underwrite our exit.

One tailwind there has been obviously the path of rents, rents have been historically extremely resilient, even when HPA hasn’t been. And so that’s a big tailwind there. But we continue to see a lot of equity capital come into the space, nothing is purely rate agnostic, but we’re very bullish on the fact that capital will continue to come into the space. It’s still a very efficient and attractive investment. And as you know, it’s worked out quite well as an asset class, over the past 10 years and we think that will continue to attract more sponsorship to the space.

Stephen Laws

Appreciate the comments there, Chris. And touching – you talked a little bit about expanded prime products and opportunities in the purchase market. When you think about bigger picture, is purchase market going to benefit more from, do you think these expanded prime products or is it more supply that needs to head as various bottlenecks get sorted out? And then as you think about refis going forward, certainly rate driven refis likely in the past. But given HPA and what seems like less stimulus coming, could we see a wave of cash out refi as homeowners tap equity in their homes, which is pretty sizable for a lot of homeowners at this point?

Chris Abate

Sure. We’re pretty excited about the non-QM lineup that we plan to roll out, before the QM rule changes, it was largely DTI driven. And now there’s just a number of different products that we’re interested in. So I think there’s a big runway there and I think a lot of originators are pivoting towards those types of products. We’re having really good engagement with our seller base. As far as cash out refis, I’m not sure given where we’re at in the cycle that you’ll see so much of that, but I do think you are going to see people look for ways to tap into equity in their homes.

And that’s something we’ve been very focused on internally and we should have a lot more to talk about going forward. Obviously, we did the first securitization in the third quarter of home equity investment options with Point Digital. So there’s a lot to like there. But overall, I do think there’s going to be a big transition to credit cure or expanded credit non-QM. And for us, we feel like, we’re a step ahead there and that should definitely be a bigger piece of what we do.

Operator

Thank you. Our next question comes from Kevin Barker with Piper Sandler. Please state your question.

Kevin Barker

Thank you very much. Your execution on Sequoia securitization has been very efficient. Could you help us or at least quantify – help quantify the impact of liquid mortgage and utilizing some of that technology in order to – the real time remittance payments and the transparency that’s developed. Can you help quantify not only the bid in the market just for those assets and the transparency, but also maybe the efficiencies that are being developed?

Chris Abate

Yes. I mean, it all factors into our financing costs at the end of the day and where our Sequoia is execute. And I think early on we focused on blockchain technology to help investors get greater transparency into the performance of the underlying loans. So that’s not something that, you sort of quantify and basis points. But when we look at how our deals have executed certainly in January, I think it’s widely known that that the first Sequoia we completed was well through current market levels.

And we continue to see very strong interest for the program. And I think those enhancements continuing to roll those out, we rolled out some ESG disclosures the first time in January, SASB based. So trying to lead from the front with those types of innovations, I think is what keeps the execution in our program ahead. And over time, as we continue to work with liquid mortgage and we continue to work enhance the deals and we are very focused on blockchain.

You’ll start to see more tangibles there, but I think it’s still very early innings. And for now, I think what we’re most focused on is just kind of trying to stay ahead of the market, get through this transitionary phase until you start to see the broader markets in a more current coupon position. And I think there – the real differentiation will become more apparent, which is hard to do in a heavy refi market, which is where we’ve been.

Kevin Barker

Okay. And then we see home price appreciation was up exorbitant amount historical highs relative to the past several decades combined with student loan repayment. That’s going to – the moratoriums going to end here a couple months. There’s a significant amount of pressure that’s likely to be on consumers as we move through this year on top of higher rates as well. When you look at that – when you look at your portfolio today, are there any specific asset classes where you feel like there’s the biggest risk from some of those changes, whether it’s slowing HPA or higher rates combined with potential less stimulus dollars than we’ve seen in the past?

Chris Abate

Yeah. I mean, I – at this point we feel great about the overall portfolio. Delinquencies are more or less back to pre-pandemic levels. There is record amounts of home equity broadly speaking. So there is no particular point or area of concern today. Clearly, we have some deep subs on the balance sheet and we’ve got RPLs, we performing loan deals. So there is areas where risks are marginally greater.

But those are factored down quite a bit as well. And when we look at the quality of the collateral and where we’re at from a basis perspective, we would need to see a pretty significant downturn. So we’re not – we don’t expect that currently. We obviously monitor, we’ve got a number of credit metrics that we track and model. But right now, we feel very, very good about the book itself and we’re pretty opportunistic right now putting capital to the work.

Kevin Barker

Okay, great. Thank you for taking my questions.

Operator

Thank you. Our next question comes from Doug Harter with Credit Suisse. Please state your question.

Doug Harter

Thanks. You talked about the business purpose lending gain on sale was lower due to kind of volatility and securitization execution. One, can you talk about whether there’s been any transactions kind of in so far in the first quarter and kind of how those spreads are trending? And two, your ability to pass on higher financing costs into the note rate?

Chris Abate

Yes. There’s been a couple of transactions year-to-date, Doug. Although, I would emphasize that we are the only platform that is securitizing our traditional core capital loans. There’s no one out there on the market doing those that remotely close to the scale that we are. And so our capital offerings are very unique and they’ve historically executed accordingly. There have been a couple of transactions one backed by bridge loans and then a couple backed by smaller balance 30-year term SFR loans, which tend to be backed by just one home. So pretty fundamentally different products. And it would be hard to draw frankly, two solid of the line between those executions and our core capital offerings for a variety of reasons.

That said in terms of the ability to pass on to borrowers, we have the ability obviously to reset, our pricing and the market is competitive. But we look at that every day. And I think one thing that I would say is, historically just the margin of error, with margins in that business, we’ve historically had significant pricing power. And so we feel like we’ve got room to still make healthy margins even without fully passing along costs to the bar. It’s just – it’s a huge competitive advantage for us, like I said, because we’re really the only platform doing those types of loans at scale. So but those are pretty big mitigants. And again, in terms of observable prints in the market, there’s nothing that really quite compares to what we traditionally issue through CoreVest.

Doug Harter

Great. And then, sticking with CoreVest, BPL, it seems like there is more capital coming into to be a lender in that space through other private equity back companies or transactions that are happening there. Can you just talk about the competitive dynamics and kind of how you feel that CoreVest is positioned?

Chris Abate

Sure. Well, you’re right. We’ve certainly seen a couple of larger competitors of CoreVest changed hands over the past quarter to, I think it’s probably a bit early to tell exactly how that shakes out from a competitive landscape perspective. I would note that one of the platforms was originally or held by a bank and then changed hands.

So they’re – it’s tough to tell exactly how that – how the costs of capital will evolve from the prior owners to the current. But we expect the market to remain very competitive. I think the couple big things with CoreVest that I think are really durable. Competitive advantages are number one, just how institutionalized and automated the processes are there. It’s a really big deal to be able to serve these housing investors more quickly.

And we feel pretty strongly that we’ve got a pretty deep competitive mode around our technology and our process which to your prior question is another reason why we feel like we’ve got good pricing power in the space. The other thing is just the suite of products, CoreVest has always been the end to end lender or the ability to finance the first actions of the investor, all the way to financing them when they’ve got to stabilize portfolio. We’re continuing to diversify those products build for rent is another area of focus, which we hadn’t yet mentioned today.

And so I think on any given loan, it is competitive, but when a borrower who has got diverse needs a one stop shop, CoreVest continues to be the phone call choice, but that said, you’re right. The market has clearly been favorable and we do expect competition to remain strong with these new owners.

Doug Harter

Great. Thank you.

Operator

Thank you. Our next question comes from Eric Hagen with BTIG. Please state your question.

Eric Hagen

Thanks. Good afternoon. I think just one from me. Can you repeat how much discount accretion you have left to accrete in the portfolio and the rough timing for that to flow through under earnings?

Brooke Carillo

Yes. We have about $2.22 per share of discount remaining the book. We didn’t include the breakdown of that this quarter in the investor presentation, but it is in one of the tables in our financial tables, but the vast majority of that is in our RPL portfolio and in our capital portfolio as well.

Eric Hagen

Okay. And then the timing associated with pulling some of that into earnings on maybe how sensitive that is to all the conditions you’ve talked about on the call.

Brooke Carillo

Yes. So we have about $700 million of loans that we think are called well this year that could obviously accelerate some of the discount coming into the book. Fees while they’ve slowed slightly remain elevated. We see that across our RPL portfolio, which pays about a 16 CPR last quarter, that has been a continued tailwind for that portfolio over the last number of quarters and fees remained high across our Select and Choice shelves as well.

So those are the main – that’s the main driver in addition to underlying credit performance and as Chris and Dash all have mentioned in prepared remarks and subsequent then, we continue to see a lot of strength in the consumer and tailwinds for delinquencies to continue to be stable at these levels. So all of those should provide support for us capturing that discount.

Eric Hagen

Great. Thanks a lot.

Operator

Thank you. Our next question comes from Steve Delaney with JMP Securities. Please go ahead.

Steve Delaney

Thanks. Good evening, everyone. Excuse me. Look, obviously the changes in the financials, I think, well thought out things do need to evolve. I do appreciate you saving the shareholders’ letter. I think it’s just nice connection with your history and legacy, so props on that. Not that I’ve had a chance to read it this quarter yet. So look, I appreciate the candor you guys have kind of expressed and going through the business lines and the fact that there will be sensitivity to higher rates and credit spreads move being a little volatile and widening out here.

I mean, I just want to summarize exactly what I think you said CoreVest pretty much business as usual with obviously tight focus on financing the investment that would be number one in terms of, okay, the least impacted businesses would be the BPL. Number two, use your investment portfolio. I think Brooke said, you didn’t have a lot of availability, but $125 million. But if we’re going to get this location spread wide, that’s obviously you guys are very well equipped to step in and take advantage of that.

So maybe that’s like option two. And it seems like the real challenge you have from a management standpoint is the prime business, residential business. I guess to switch from statements to questions. It sounds like that’s the area where you need to be the most creative in terms of whether looking at products, whether it’s more in the choice area, where it’s more of these expanded agency paper. I mean, how quickly, I guess, I’m saying, first off, did I summarize kind of where – how you’re going to approach 2022? And how much can you really do in the residential to kind of make up for the slowdown with higher rates, especially with respect to refis? Thank you.

Chris Abate

Hey Steve, I’ll take a first crack at that. I think you summarized it well. We’re – the CoreVest business, the BPL business, we were very strategic in entering that space for these types of circumstances.

Steve Delaney

Yes, great. Great move.

Chris Abate

Yes, that – so that’s happening exactly as we had hoped and expected, and we expect another strong year for the platform. The portfolio, you’re right as well. When spreads widen, particularly credit spreads, we’re more sensitive to credit spreads than rates in our book. Asset prices go down. And so that definitely has a mark-to-market impact on your existing book, but creates great opportunities to deploy capital, and that also played out in the fourth quarter as our biggest quarter of capital deployment since before the pandemic began.

And so the more interesting story is clearly in resi. The good news for us is I think we’ve tried to highlight how we’re differentiated. And there is points in that cycle where you should be more focused on not losing money than trying to make a lot of money. And in the fourth quarter, you started with an industry that had the capacity to originate $4 trillion of mortgages annually all in.

And in the span of the quarter, we saw what happened with the inflation prints and with the Fed signaling and mortgage rates gapped higher. They’re significantly higher than they were a few months ago. And that was quickly on the back of record originations. And so we have all this inventory that needs to clear the market, which is in the process of doing.

So that’s going to continue to be a headline in the consumer resi space. We’ve substantially cleared out our pipeline though. And in fact, I would say we’re very much on offense in here in the middle of the first quarter. We’re actively successfully buying bulk pools and mortgages from originators. We are having a lot of success effectively pre-placing risk.

And we’re very much preparing for these LLPA adjustments and to make sure that we’re in a position with our seller base to be boosting our production in our share. So I think our story is not the macro story that’s going to command a lot of ink in the first quarter. I think clearly, capacity needs to correct the expenses that for most originators are too high at this point based on what they were sized to do.

And for us, it’s continuing to be efficient, turnover capital make sure that we’re issuing the same types of investments and securities that our core investors know and expect and be creative. Our team is very entrepreneurial. We’ve got – we’re having great success with the rollout of non-QM products and just meeting the needs of consumers in this type of rate environment, declining purchasing power and the need for expanded products. So it will be interesting, but I’d say the headline for us is we feel really good about how we’re positioned. The business is profitable. And if we can do our jobs here, we should be able to take market share and meet our goals.

Steve Delaney

Yes. That’s great to hear. I think it’s a positive attitude for the year, and it would be different, but you’re going to go for it. So thanks for the comments, Chris. I appreciate it.

Chris Abate

Thanks, Steve.

Operator

Thank you. And ladies and gentlemen, that is our last question for today. And with that, that concludes today’s call. All parties may disconnect. Have a great evening.

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