RWT - Earnings call transcript Q3 2019

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Operator

Good afternoon and welcome to the Redwood Trust Incorporated Third Quarter 2019 Financial Results Conference Call.

During management’s presentation, your line will be in listen-only mode. At the conclusion of management’s remarks, there will be a question-and-answer session. And I will provide you with the instructions to join into the question queue after management’s comments. Today’s conference is being recorded

the and to for Head and turn Senior Hartman, opening now introductions. President Vice of will call Lisa over Redwood's remarks I Investor Relations ahead, go Please ma'am.

Lisa Hartman

participating Jerry. call. results Thank Thank XXXX Hello, right. third quarter you, you All for in Redwood's financial everyone.

Robinson, the Financial Dash Officer. President; me Executive on Abate, Chief Cochrane, today call Joining and Chris Collin are Redwood's Officer; Redwood's Chief Redwood's

business want made to begin, I to may or during future presentation we that statements remind statements. Before certain forward-looking respect management's with financial performance constitute you

uncertainties Forward-looking forecasts, statements differ are and assumptions based could on current that expectations, involve cause risks that to results actual materially. and

We description material the may company's encourage statements. on a of report some actual annual performance and of forward-looking impact on could that the to that you a those to cause differ the from company's have be provides Form XX-K, results in which factors expressed read could

with management refer in non-GAAP not non-GAAP we and to insight performance to of and one will GAAP this in utilized substitute be provide aid measures ways the company's On financial GAAP. as for further isolation performance. or measures accordance They performance also to call, are prepared a into both considered The provided measures. financial the of investors analyzes financial Redwood's in that included understanding should

to information reflect is circumstances. not and October XXXX. or does XXth, website. third A reconciliation information this intend time-sensitive our between today, that of earnings note to press quarter that provided our and obligation no The GAAP contains measures release review both only financial accurate this and on Also events non-GAAP of as the in Redwood available is conference call subsequent content undertakes company update

being recorded on will today's the company's call available website later today. Finally, be is and

Chris, to Officer, now opening introductions. Chief over Executive will turn the for remarks call and Redwood's I

Christopher Abate

Thanks afternoon Lisa and everyone. good

who home very headquartered company, to are the I and at to Northern have this These fires to remarks, evacuation hour coordinators, my us, as begin efforts in our wildfires a communities as and rebuild others, especially various helping fires burning contained. close officials, forward wanted are and firemen, by contain currently for we to our Getty recognize look local recover and great I these bravely California. the Before undertaken fought California

Redwood, future significant time At of an positioning third marked historic us, for we quarter finance. for company were the housing made the progress

the consumer Looking evolving broad housing a our to a commitment announced mortgage comprehensive years investors across credit This strategy real residential similar back few residential but we to and business ago, business, also estate purchase offering our to a income. expansion competencies of for not only a landscape. for new entailed leverage housing solutions to

skills operations best-in-class toward tangible that serves alike. finance one necessary a and we've that have homeowners, investors Since platform, time, building demonstrated in and and steps of to taken liquidity market the needs this the homebuyers, grow specialty all

CoreVest. underpinning a the our expansion a have strengthened, Our convictions lending space That lending United keeping Irvine. we purpose validated pace X Redwood home announcing further formation. business the States new organically, new opportunities rate in not of new second seen in With strategy partner new purpose of with building as our household the a strategy. Arches through our up recently Arches into by at solidified thesis investment the is core in The team evolved with began partnership but quickly into we X have the is, business

our and Redwood with customers over of a with industry-leading of few To recap $XXX business team partners. our relationships that ago, values originator talented fostering our announcement an extremely working platform. and with assets from BPL profitable weeks operating integrity total is million and They CoreVest to a shares an deep bring

industry-leading developing has funded profitability. recently contributing CoreVest also in loans, the with platform while issuer. a seamless scalable that has highly transactions since than business technology generated significantly in their Since XXXX, to date, banking returns experience. XXXX, its attractive $X loans in company's began to offers inception The completed more borrower The over any of its mortgage such it other issuing firm single-family ninth rental billion securitization

as about extends long-term Pairing a in our our market-leading lender operating of of and $XXX It this benefits provide acquisition prepared and Sequoia program the own strengthens excess this channel remarks. be with details private Dash our platform investment and to in lead will market. we Collin also billion. in size estimate their whose more to near- label market further in the our securitization leading portfolio position a

GAAP $X.XX from declined September at XXth per GAAP prior net slightly up a was although income second point quarter's to comfortably $X.XX of percentage quarter. $X.XX a non-GAAP quarter, dividend earnings cover of the from represented $X.XX our share this value share decline book Moving core quarter. to the our quarterly second share, half the per from per of on results, continue about

Obviously, CoreVest, excluded third needs, we time charges ample particular, focused goals, funding with to our some GAAP results of our these near-term core earnings. our non-GAAP optimization acquisition, of $X.X long-term contributed priorities softening CoreVest associated In results. an spent million a our included the on our acquisition our amount and quarter one-time the from we portfolio in of and of

the strength to our model continued perspective, respect through navigate third leverage to to rates. particularly operating of ability quarter our volatility, the an business market with demonstrated interest From

speeds resulted volumes, interest mortgage execution securitization third going rates strong uncertainty margins and although banking about forward. challenging, as softened prepayment in due to investors' quarter were fast and hedging prepaids both Low

the at portfolio investments reduction interest income prepayment our effects net in from temporary economic in faster core for a values these line our investments of premium, item. was structural prepayments. an fair Offsetting Additionally, of result improvement impacted we as non-GAAP in resulting a deleveraging a hold most negatively speed subordinated

and made home wave its the subsiding improved collateral rated AAA have later banking for the rates lower-coupon way into mortgage system. securitization the helped quarter, in and both re-fi as quarter for the bit and executions a appetites through Both Additionally, considerably. on-the-run, margins investors' loan back-up in RMBS fourth the third

mortgage continue quarter, our fourth course demand XXXth Overall XXXX. securitizations and including overall, ended residential for in We continued investments, we our return quarter our into prices have fully credit the the deals three securities, strengthen during completing and to of drive throughout been advantage for up profitable credit has plan where third non-strategic XXXX normal Sequoia to higher rotating and and of asset take continue to by out expectations realized.

net the quarter meaningfully, complete, CoreVest substantial beginning With with power income to our portfolio's optimization increased forward, economic XXXX. and sustainable going now we have expect investment acquisition and interest grow we fourth of the earnings portfolio

Collin say transition our I'd on results back operating lot and to residential a core optimization efforts, Dash more our full business. will so to have consumer and like to

our loan and non-qualified by our expanded sellers. loan growing approach Here, we we remain leveraging residential deliver to credit, speed to committed execution products reliable credit mortgage and our to to close,

quarter marked The Redwood on quarter strong quarter-over-quarter record a third for purchases growth. Choice

We about they so-called finance the non-QM most the regulators housing reform this recently are by the intend very excited QM expire. of late the trajectory course year, space, to CFPB initiatives of over July that the let patch in given announcing

QM non-QM contextualize Mae Freddie consumer of produced to playing loans billion XXXX, annually banking by an will To field patch presentation As for we business. mortgage patch in $X in Mac. level the We upwards a advantage non-QM a lenders. resulted opportunity, about playing residential sector the we mortgage laid afforded we expiration a in mortgage $XXX of is competitive Fannie the and total year field loans billion successful our unlevel May, and this published of estimate regulatory-driven that out profitable in public for purchased the for

our capital ability pace, complemented great been has relationships, unique The years. at structure key investments our portfolio. a differentiator continues record always and duplicate. business by leveraging for of and success within been durable cannot deploy has investment operating over Redwood directly source our work to team portfolio to competitors easily forged our The several the The done

Our portfolio. of XXth, acquisition collective deployed before, ever that including through investment businesses capital the than after of CoreVest over October suite million of makes our $XXX with truer

the activities efficiency of and our per the banking As we to corporate of our maximizing functions our share. profitably our grow be will and growth mortgage platforms, key business scaling consolidated earnings portfolio

as related as yield to to alternative flattens ahead, are the succeed, real curve in and seek however, credit-oriented As such remain assets. ways The demand, know-how ours estate supply. required sourcing and product look we in source high investors operating scarce strategies capabilities

options the the available purchase non-QM, technology Our to possesses the whether between liquidity of our in company a jumbo, necessary unique to automate further the customized bridge in gap borrowers, them needs non-agency already these process the infrastructure and anticipation investments and to loan or making in We're marketplace. traditional opportunities. ability of BPL,

correspondent network, and specialty vision in industry integrating BPL towards eye the businesses time becoming over across national operator and the consumer most With mortgage an be our can of our profitable realized. finance mortgage preeminent our

hand to off the Dash. And with call that, I'll

Dashiell Robinson

Thank good you, everyone. and Chris afternoon

Before on CoreVest. for I about to acquisition I results third the want of share quarter, recent our more touch

platform, As financial month value a of along of completed an million of assets, origination $XXX our refresher, with over million financing. CoreVest's million, investment with earlier included ascribed $XXX $XXX this and in-place related

from the loans to single-family bridge or subordinate rental loans and sheet upcoming in seeking held balance is company's SFR securitizations, made comprised portfolios. for stabilize sell pipeline securities securitizations, inclusion to CoreVest's principally of investors in retained short-term slated their

Almost loans, XX% lending fed including the $X $X.X the CoreVest's bridge of borrower XXXX a platform comprised is life-to-date, single-family originations natural generation and Chris XXth. by organic billion lead billion year-to-date of mentioned, As both rental over September that volume has loans, book. cultivation are through through of funded

to this our and our As XX opportunity to basis credit the offers $X.XX that course over accretive annually the reflects strong of of in next Chris $X.XX the area the on which to months. acquisition for noted, returns CoreVest we be estimate XX range of per-share of for shareholders, belief growth a substantial housing

created function of the accretion on income returns a additional of financial through platform, flow projected Our origination and forecasted operating investments of originations. earnings forecasted is portfolio the assets, go-forward acquired

Importantly, and believe not close in by rationale. can competitive does encapsulate this complemented and forecasted business. overlap bring CoreVest's competencies, unique to seasoned platforms, clients securitization to notably strategic that reliability speed acquisition's the is most fully our we advantages An accretion for

extensive cost capital. potentially our over and differentiators time. These additional network, fertile equity a value of and banking expand which mortgage product debt are we include that compelling drive through will These ground distribution, believe to

to lending diversity long-term we of of possess create both and fit, from activities. expanded is efforts for capability and sustainability growing sale a on fees of value stream describing our to origination origination attractive securitization gain business direct and our In overall. now and the CoreVest important revenue in acquisition portfolio strategic streams emphasize at can investments and addition of The returns the purpose

return into XX% loans organically securities the to continue to a time. in-place bridge investments, our Post-acquisition, to investment and portfolio to portfolio on We our on expect financing. CoreVest subordinate these over hold equity a in now and to account generate SFR is intend taking concentration investment for expect XX% over and that grow securities, of associated loans will allocated BPL XX% we

on loan after-tax return and origination returns CoreVest's expenses. financial operating near-term, capital on the income allocated a to both generated fees expected the of inclusive the sale, and do origination include to These platform, operating low In premium net platform to not operating by which generate we on capital. assets working core activities, expect of include gain mid-teens

pure banking profitability, higher strong residential Forecast in a the on a over returns business's reflection operating our revenues. capital and of mortgage time to isolation, complement substantially are working

us platforms X positions under We a we scale the deep the profitably to growing Redwood in marketplace. believe having Arches and umbrella both as what and view CoreVest

our we discussed the CoreVest the not platforms call two As on compete. acquisition, announcing will

to vast, of ways assessing reason complementary part the already BPL the find met. CoreVest's model, housing is X untapped of Redwood two cohort with not by the distinct in the Arches we a space platforms we The business believe financing what are key intrigued approached compelling being yet were whose which needs family, efficiently marketplace. investors, the we In be

and multifamily. of investors whether rental, help in single-family bridge lending lending, and it products and or objectives, meet single-family Many these likely them be their to small-balance financial that build-to-rent, remain are available unaware term

overlap is approach, means is borrower use the business. access to market between unique respective there some develop we platforms of While borrower relationships. by of and the overlap observed relatively evidenced the fresh low the books This in incidence

is, the platform. especially testament depth to and market of This maturity the overall, each the part, in of size given a

forward move the cumulative our on to begin excited purpose are realizing of platform. We origination business and lending

totaled results, quarter saw in the persisted loan $X.X the third Turning in which to half quarter, our billion. helping rates mortgage the we of throughout generally the our year maintain business, lower third purchase first banking residential volume

$XXX of third-parties. sold meaningfully, volumes completed loans Select the to of lock third volumes The and we shifted $XXX one million of securitization loan mix During totaling and quarter, XX%. million were Choice quarter million, two and purchase Select Choice whole and Choice up securitizations $XXX

purchases noted, Chris quarter the loans. record a was third of As one for Choice

quarter quarter of ownership full third second our X The of represented Arches.

made profitability strong and improved our to We integration in across assets meaningful generated portfolio. returns progress efforts from have investment see on operating have begun platform and held the our

Overall, $XXX a largely quarter, number million of from has improved driven million, in quarter for pushing loans totaled BPL already fundings originations Arches run X October. the additional third quarter, small second and an for for rates the of We into early $XXX October. originated anticipate decline by the fourth loans a

we the opportunities and to X platform. contributed Arches the pleased value platform our We end and $XX has capital capital the investment more by generating core we have million Through of portfolio. across business, Arches, of remain third over bridge with returns our of approximately XX% originated into portfolio returns on see unlock the attractive to deployed loans million risk-adjusted the the X quarter, for $XXX of

capital to to XX% Optimizing XX% financing over available our to levered estimate for returns terms, currently increase we time. this

XX%. originated begun facility, financing using to Additionally, FHLV SFR our X with an of return we financing have estimated Arches' loans XX%

long-term access an we Our to competitive to advantages key ability optimizing example low-cost one capacity. returns of use our increase this financing financing in-place how and is through of

investments. increase unique capital opportunities, Turning organically second an sourced increased we investment our the execute to continued quarter, from to as portfolio, on with investment activity deployment combined on third-party

deployment backed and into Specifically, of securities from Arches, million million securities our an included RPLs; allocation loans three million Mac towards our originated additional $XX investment Freddie issued by in re-performing $XX our loans, subordinate or by million Sequoia second to X $XXX transactions. $XX

portfolio and now key of the allocation quarters. RPL past Freddie in capital over have our strategic XX% Investments our represented opportunity issued a comprise total Mac several securities for

the loans Freddie been modified Beginning XXXX, off those programs, seasoned of whose in transferring balance complement as their private at origination. ownership has the through retained late capital risk of In credit on a had typically securitization structure credit and the these sheet, selling syndicated structures, subordinate initiated guarantee, or loans has mortgage terms on portion to Freddie securities either the non-performing single-family risk market. Mac security Mac from senior underlying to

to XX alternative attractive financing senior provides rate the financing in up years, to three marketplace, in in step five subordinate structure contrast an locked which for rates years. The noteholders transactions in after

Central will in their that to that to the a the servicer servicing working linked current. sometimes is keep in investment continue assumption history securities can delinquency borrowers be to terms improvement modified these loan. the thesis with high-touch and steadily view the them borrowers duties cure any of in by of This under specializes persistent performance paying

mezzanine a structure, leverage tranches. which best XX% these securities, XX% estimated the of to inclusive more returns XX% Our case to on effects transaction on represent capital the than of loss-adjusted applied the between range of basis,

our to to payments has that XX% favorably, than from originally continues delinquencies, two to of as borrowers first delinquencies have decline our less are modeled performance The This in year. one expectations. XX% date trend to declined Freddie typically representing behind, one transaction exceeded in RPL

strategic million capital-raising new third the We quarter which elevated, securities financing activities, of through sales combined optimization for generated of the Our several realized captured which saw and netted the million activity redeployment given $XX and opportunities of portfolio in investible a gains. continued was a organically included in capital we process in transaction, $XXX market. capital

our backed debt is substantial of Redwood subordinate which CRT were securities, facility sold and three par of mezzanine recourse is Security and an portion non-mark-to-market for The The at has to of three-year X.XX% meaningful by premiums structure extensions. multifamily Sequoia and option for to focused subordinate recent a two we securities. value first one-year with coupon in a structure is many The securities. sales maturity carries a years. the financing

over Collin. Now to turn to it I'll financial recap results, our

Collin Cochrane

the per compared results third in by fair was core afternoon quarter. The everyone. our share, in benefits were with GAAP earnings with good in Thanks third $X.XX an increased financial the Dash summarize value in from quarter. spread $X.XX whatever in security portfolio our and for compared second investment GAAP $X.XX per and the quarter driven tightening the share, our earnings during $X.XX primarily earnings To quarter, quarter, second the changes increase

offset by Core earnings third higher in mortgage quarter, partially rate decreases to were per share decreased lower banking income, economic both negatively gains. the These results primarily impacted and due interest are realized which by net volatility.

While elevated a as ourselves of dampened due be the for of credit was capital, and in balance continue acquisition average we net to overall income quarter, selective the economic to CoreVest portfolio growth gains activity environment. spread the undeployed capital to in due interest optimization higher benefitted positioned during redeploying

to costs economic quarter, by net continued volatility during be and impacted in interest prepayments. resulted which Further, the rate hedging income increased higher

improve helped repayments portfolio premium. investments negatively it held our a to impacted subordinate faster values While investments, at fair of

decreased share a quarter for Our with per which, to value economic book $XX.XX during dividend, third along the contributed to return the quarter. GAAP our X.X%

earnings impacted quarter, dividend the book derivatives in third our long-term GAAP the which the during primarily our share debt, hedging decline decreased, by the rates decline $X.XX due value quarter. to value interest during exceeded benchmark in per While were an of

this our our on benefit benefitted earnings valuations jumbo tightening particularly GAAP was by financed the a FHLB and from on the faster I/O at loans at our impact credit residential held assets overall while Additionally, spread partially by subordinate our prepayments securities, of securities. negative offset premium,

which exchangeable during due debt activity, the to second balance with significant our to the the the quarter, from of set maturity. in ended increase outpaced million increase primarily capital-raising we deployed quarter amounts a quarter. exclusive capital an capital, This available repay was upcoming we position, the to capital and approximately of $XXX Turning aside our sheet

During of of and secured facility $XXX the from stock capital financing quarter, Dash freed we from million new million the up low-yielding issued securities common $XXX long-term million $XXX sales and of discussed.

Subsequent to to optimization approximately $XXX utilized activity month, of million. current quarter-end, of acquisition our $XXX available we capital during the after capital, be other deployment our CoreVest million and approximately estimate

what year, Looking our new capital believe sufficient And capital evaluate BPL interests optimization near-term for fund incremental to created forward portfolio will usual, the our needs, we platform. activities of investment our up for through be as will including the in opportunities, to need end for to this expect shareholders. by while assets terms the we expanded new capital in of the free we best continue is

we In to activities, six-year, will $XXX is outstanding which of excluded replace available our $XXX capital our November. capital-raising additional exchangeable exchangeable notes, also current X.XX% issued at X.XXX% million and in million due from debt, our

Looking at quarter. the was debt of at equity times the structure end recourse to our holistically, capital X.X our third leverage ratio

the from capital, fourth second decrease range four our deployment. times, capital CoreVest timing The our after quarter within for half and was we expect acquisition, increase deployment of times. quarter, the the activities to a to long-term the and In three by leverage our around driven capital-raising target of three of including to

outlook, results of the operations our generate Turning optimization for year. strong XXXX near the first end to in from included we our high and the our gains us year, banking financial put mortgage beginning range to of from of on returns activities, X the the provided overall track have elevated which initially performance portfolio months the

improve net to volume banking our remainder interest in we long-term margins income further, down gross realize year our and Breaking we expected within of And stable. our to and gains in portfolio, the to to for mortgage expect to moderate. residential see range remain normalize for expect business, that investment economic the

experienced economic the continue summarize, this net of we quarter ENII to decrease supplemental commentary trend we've reverse in in income. included and expect quarters, growth fourth over two overall session XXXX. some we an for review Now, to while quarter, in last interest the To this around our into beginning ENII

as including and as of deploy those asset as investments accretive potential, to capital types. occur optimize will acquired available full begin earnings from several This our we recent CoreVest, we into to their investments, realize continue our financing

ENII to benefit meaningful a if see could normalize. we prepayments Additionally,

Further addition of around on are XXXX CoreVest, generate to the capital to provided platforms our combined for mortgage capital, banking return business of allocation a review. Redwood XX%. XXXX, to of we purpose to for expect core equity purpose Finally, in with total of from banking expect outlook remainder we business our on platform, the to quarter details increase XX% XX% mortgage this our our business the and third

Q&A. And with I'll remarks. Operator, please prepared conclude open that, for our the call

Operator

this [Operator At conducting time, you. a Instructions] question-and-answer Thank be we'll session.

ahead first The the line of Harter, go is Douglas question Please sir. Credit from Suisse.

Douglas Harter

Thanks. kind value kind on, Can impact know, you. net, returns? prepayments impact kind the So, and changes, you changes of were of flow sort through know, how about to your earnings higher of economic talk if and book you higher you you prepays of of

Christopher Abate

the Sure, ways, the in and cited Doug. side, execution volumes in loans, the definitely we prints we're that There's impacted we saw business. some especially one different quarter. really June That and happy July, banking elevated, third the said, particularly starting pretty thing our XXXX securitization a with balance mortgage vintage on in volume. and was been few refi Obviously, have fast

the think investors, strengthened lot third a products, the as of into of has we have I lot definitely fourth that some the execution and quarter. regained in into later quarter, comfort, a lower-coupon moved

on You investments, also the we premium our which impact had noted.

the the impact. I was told $X.XX, in or neighborhood of think all take, probably give net perhaps

that if pace again, gotten did. to we activity going deals so alter in the you're no of to the loans the mentioned, And mortgage business, as you've we moving, off got have three to keep I banking But, plans the pleased forward. have we're

Douglas Harter

just talk of profitability as of then banking And mortgage of ending. profitability standpoint? from the Can looked how mentioned kind you Great. about October kind a level quarter you execution going, think of kind improved was the you know, I

Dashiell Robinson

Yes.

to improved if in where of also, you third function a to of to We did rates what the a ability collateral So, but Chris's in course, deal price, gone, Dash. production certainly its compare of October, the Doug, about execution point, a coupon was that AAAs the to couple by on things, the have did one whose of closer point securitize we the quarter, transaction coupon current complete which three-eighths and in helped. was execution

The that by tightest years, normalization bounced several also driven the has on certainly somewhat but market quite where of the securities, we're rates trading and so seen actually, transaction demand, mortgages execution here and we'd in on securitizing It's was AAA the are strong generally. back certainly the in what versus October.

Douglas Harter

Great. Thank you.

Operator

Raymond next question Stephen go Laws, The is Please sir. from James. ahead

Stephen Laws

Collin, Good following identified you. opportunities kind other guys to might October talk as on that than lower-yielding facilities some look was as in million. in you'll purpose you securities themselves, loans as your comments, financing pro on up optimization the sell little place? guess $XXX that business have any you well down capacity make roughly like of be I efforts present detail sounded more can Can about, Thank and afternoon. attractive of have forma I on appreciate investment warehouse the current you the end additional it update, at you around capital more maybe

Collin Cochrane

bit as we're think potential optimization, there. of we've year, investments at. little significant terms this progress for looking work I mezz think remains made have at in a to I we're think some Yes, that some still candidates a I potentially still looking optimization, but do amount that and We of CRT multifamily there of

I think a do into that amount date. progress heading have year think, the made expect bit we do, I mentioned but quarter, a we little more there I optimization of to is fourth So, to significant that still

of tapering through of that the down sort see do optimization we the So, end year.

rather, did, putting year we financing, again, of make this terms new quarter, good in progress term some loan putting this -- or And in place. this

expect business of expect little on end there's loans, think our do some improvement. of terms up some a the through of the there some tighten work see the bit of year we financing the to to terms I In purpose to of and

some FHLB. we've get then, And doing financed probably the over loans SFR work been to on mentioned also Dash

the SFR for moved before we balance we're majority a year. the X remaining through small the third quarter of substantial to loans end get looking that this of loans of in month we So, Arches of end and the over the over finance the originated

some we're the So, are things year-end. into really immediate over next the more here, course couple I heading the of think that those at of looking months

Dashiell Robinson

Dash. be weeks wanted structure which very really relative bit fair this CoreVest, Hey be we can an -- amount probably, as acquiring just add Stephen, the into point we term in acquisition, to could but it's think warehouses, our perspective, our ago, meaningful. of of near-term Collin of impact talked financing announcing assets, near there the medium sorts on covered that a that typically of a on the the immediate I and we those of to weeks do I about that Because can couple hope to in you ago waterfront know, are, and thing because we I couple how would potentially normalize to reinforce more returns to things sort financing. well, One that inherited from a call the we structure that some mentioned we we a

Stephen Laws

XX% accretive ROE? was thanks $X.XX writing XX% you to $X.XX was low to I the could, that quickly color from I the mentioned. circle down. Dash $X.XX on I I And to Yes, $X.XX or I you to CoreVest, that. ROE I down as something that want versus back. mid-teen say to didn't Did reminder and appreciate for catch you both on writing as of else a but was the quite

Dashiell Robinson

stated then to return certainly profitability, then per to course, the share Sure, per about. of based in go-forward capital. and accretion we accretion power uses which assumptions of The of versus a range, alternative script. hedges that and Yes, $X.XX creation about upon Stephen, XX% annum, around calculation $X.XX the were that amount XX% was assumptions big a platform percent in The purchased, and fair numbers no is talked part there that are of of which problem. what the the driving profiles we've are we've

Stephen Laws

one Great. maybe FHLB as Thanks higher might up access proposal I to Specifically, for guys Collin Chris, GSE allow you and there. for back me you mentioned, know maybe Last have talk clarifying reforms? financing, well, could you here. Dash more that again, question level open know, that. but

And a definition hearing and else latest then, reform? secondly, on GSE mortgage possibly those is what you're and issues around around comments anything potential maybe new qualifying the like you'd to highlight that

Christopher Abate

pretty for Stephen. There's been actually feedback on. a today private We label I issues from the II, just meaningful that have that's the to current. issues, we've so you're sector the market lessons the think do The published SEC some ways one an active and retention, something that, well. content, Thank front. or AB to on gating the that do from XXXA market thing I hope August, transactions, on learned that some impasse more and very obviously requesting forth, going prohibited risk been so pretty you, lot released so in of Reg public is doing on

front, sort the the Director, from QM on think I expire. patch of intent reaffirming statements had we've to that the to some allow recent

private originators. as quite with to needs its to painless try certainly internally to transition automation we do to and the technology, bit ours. efforts think step We're do as can sector as I the working for as plan possible up best and part. a We make

to retention feel about a That move on there. been playing vocal definitely able we're loans do taxpayers taxpayers. some from we issues excited will feel the private sector, the front so and also a these interest feel We've away level We amount risk of significant We that. certainly the the somewhat in said, strongly on into being of very of field. like like about it's compete same

blunt binary risk one such retention loan, goes trigger will start loan non-QM. so alternatives one and risk things perspective, to loan other a we've as to QM that practical QM non-QM triggers securitization a from retention, a in effect when this asset-specific some From full advocated

We the are perspective, believe and on we QM we still for metrics provide We to fully to thoughts some market-based or -- definition, don't credit definitions versus that move did want QM non-QM. our matter. metrics

to is, metric, wherever market XX, make XX, a it's think wherever or to to we've XX DTI, that big whether challenge XX it's looking and XX XX I drop-off it lies, some or that DTI what is we're ways occurs, the the definition other acute. less whether in emphasized for drop-off,

going pressing a here up there's but are volume to and some announcements much certainly So, we as more we going of months, lot looking definitely absorb can. in coming the as and to step on. forward be this are There's

Stephen Laws

the taking like acquisitions and reform quite year seems an exciting Great. proposals, next certainly the be year. Appreciate two today. you year Well, between will this questions upcoming my

Christopher Abate

you. Thank

Operator

next The question Please ahead from Securities. is sir. Delaney, Steve JMP go

Steven Delaney

first, just thinking thing, through you. happen it It's your questions, these before safely sending you, get so Look, to terrible we're folks. your families, fires. communities just and about all Hey prayers repeatedly, to to a and seems Thanks.

or I was so headcount you on X the CoreVest? your CoreVest Arches how a have can like was On we you we CoreVest, have figure at get something, recall a but guys platform XX what do is. sense can people to for mention obviously you after now, ask Did will quarter, -- listen need take going mean, a us -- us to. CoreVest questions, but large I share it's you so publicly to to for you won't ever

Christopher Abate

XXX about it's Sure, FTEs.

Steven Delaney

in XXX, X or About at that correct know that I mind. was was on why high? my I too I had don't Arches and XX,

Christopher Abate

the number about -- additions It's when a the XXX in we now, across completed platform the was facilitate with platform more growth. acquisition That the of just little over March.

is So, count actually of FTE each close. the pretty platform

Steven Delaney

Okay, great. That's helpful.

think had $XX from quarter, $X expenses Now, Collin, at down consolidated million. million third it I operating million. was you guys $XX

as of close revenues, far basis all Now, on G&A the to annual quarterly load you you would do ignoring the specifically overhead operation, CoreVest or add for to $X.XX. quarterly a quarter. what a I'm on a the obviously basis? an either sense until basis -- CoreVest have for the your back going to come But as thank didn't fourth $X.XX to just

Collin Cochrane

$X think we're Yes, looking quarterly on million at $X to about of basis, I run as probably million rates. a expenses reasonable

Steven Delaney

Okay, took remarks, you great. to I sheet. your mean, coming in loans That's CoreVest helpful. your the very Collin. talked out you, it of And Dash on Thank what balance about

offset it's say? you're origination know, like sale CoreVest and without you XX% equity. standalone And on help of part on and two sales. Redwood, this fees gain You're a, on And I mentioned, you needs on you looking guys since to Is in what fees, for sounds a return its trying any own XX% are expenses. a that leaving -- it to gain business it's heard run that stand to fees, feet. I understand but as But you to

Dashiell Robinson

of Yes, of up value value some like just it the does sure is look making the platform about TRS I creation Arch, the is know, expense, that the question, and because important Steve, at a of appreciate loans that just the day-to-day it brings where businesses at -- of of the we origination the functions geography holistically, less revenue operating our function securities you this an that CoreVest, sit. the created. loans. the point that these platforms and X operating and because of actual The metrics,

the fees be TRS, tax-advantaged sale and with with a and basis. and so securitizing of at loans associated Arches, similar course those the REIT the SFR on long-term to investments on originations, the to will gain X will points more go borrower geographically associated the And those

Arches, measure it look and assets operating But as the performance similar to my go remarks CoreVest, metrics, holistically relates two on and to we with hand-in-hand. those created X at the

operating of And and it's metrics and is we assets performance just then so, assess tax the geographically it on split holistic But frankly. structure, together. with ourselves, based when some measure our

Steven Delaney

is, to it that production FHLB you you to Okay, their that's saying guess I trying anything off somebody sell and off think to you that you selling I with or bridge. choose point, are then securitizations, current -- selling actually or on CoreVest, it mentioned you whatever. is on was securitize was to a situation, you not what basis, retaining But whole-on all one Is can't Redwood of helpful. everything or tied the I And coming producing and it essentially know is X the or Arches they're at I gain away? it when if I'm mean, are sales -- put retain it then but you remember some --

Dashiell Robinson

the case. predominantly is That

that there to the couple effort of what front-foot the XXX% point essentially sell we're parties. of loans a to to With retaining where but we're third Arches, X platform there's produces. no There exceptions, are

CoreVest, I was could sort platform to to mortgage the product, banking us which potentially the the alluding partly point. With and open that been our a smaller a which logical of at balance has with That's SFR product options part marry so what are up this be as production small a very to-date, there's network, is to selling. of sort of

depending where like the But to keep talked intention with open for more to securitize loans we always banking. part, counterparties, pricing, the market's the mortgage regular-way outcome about We cetera. et before, to the SFR exactly haven't to along It's memory is yet keep there. it's similar to important though We could retain, them, these them risk, and to able on risk/return, the loans. be most muscle the concluded right certainly sell

Steven Delaney

Sure. all seeing Well, you comments, look in couple a thank I forward you to for weeks. your and

Christopher Abate

Thanks. too. You

Operator

from We have KBW. a Please question Bose sir. go George, ahead

Bose George

afternoon. good Hey

did range, Just back I to a line narrow to items? the on going XXXX really you it or your can't just that down guidance, core ROE was remember.

Collin Cochrane

updated we've we capital where that's out, of in fourth guidance our our the relative to terms we I we've things in expressed between it businesses in components what and Yes, laid the that's which and so quarter. allocate typically mean, format the

our of mortgage purpose we of then that inclusive component investment gave broke CoreVest. down we So, an mortgage and on business portfolio, business, our residential banking banking, the between update

review. that's so, laid And out we've what in the [Indiscernible]

Bose George

think top $X.XX earnings to core it's number And it? that? that with about guys to that XXXX, over $X.XX end $X.XX up kind in to way that accretion, of of the the think, right I the $X.XX trying Okay. think Is of we to was you really then, and on should

Christopher Abate

but we as we've needed this offered acquisition, to completed few felt guidance we more we holistic. do forward past, and the past something in have since years, we a just going in Yes, the firm EPS like we felt like

think And quarter's incorporate we of where I into next sort so, annual that addition to for think refresh we've earning. in guidance, how our review, been to but currently what about we'll that's guidance now,

Bose George

you Thanks. in the dividend, terms Okay. through then the increasing earnings. dividend closer more have core had acquisition. the TRS now in obviously talked of just to past earnings I'm the about at curious, the And guys you

you that. Just view updated how thoughts on

Christopher Abate

and we talking But about and do, to because the consistency and to core and net really We've of core. we're what I trying bit economic that little of line mean, -- sight what optimizing, -- been se. those we've spent income, we lot per and I the pieces the we durable, sustainable is cash think get those time puzzle a this drive put to a we are what flows. together, gains, one-time interest Yes, think, runway done our how quarter of realized we've we've extended more

like consistent course, will cash in bit that's we how feel raise have focused a that generate of goal together the We little to on. the us portfolio we've that cash is put flows. so be transparent dividends, a flows more will we're durable those Ultimately, enable to something

Bose George

Thanks. great. Okay,

Operator

Nomura. We have sir. Instinet a ahead from go Matthew Howlett, Please question

Matthew Howlett

just for but XXXX? CoreVest, single-family Thanks you did missed I if or combined Hi combined, I apologize my guidance for number question. origination for an give taking it, everyone. purpose rental business loan

Dashiell Robinson

No, see room sort a would which current Dash. run of you we've put we on rate to here. that I behind more point, about. to certainly We'll haven't, we we when at didn't. get can point quarter I a of talked have it's Matt, Hey but say growth, this us number-- production, for the

Matthew Howlett

Okay.

Just a remind How of they what, penalty the tranches? are, maybe the help that would subordinate collateral me of take X%-plus? coupons the think And what process. are big in interests are you then, loans, mean, bit terms these I retained about and the -- securitization prepayment are down the not, little me

Dashiell Robinson

The Xs. either some of ad estate yes, or those much At yes, what they loans obviously having the about average the or around vast tend the to of or these coupon like it's majority move yield with have protections. prior typically [ph] will months but in declining certainly things securitizes as six one as to have XX-year There have them And more typically compelling X%, CoreVest maintenance maintenance but maturity taking is, loans they much declined Yes, through XX-year yield five- structure, up real prepayment commercial perspective, in to IO loan, from the of with point, rates. period. so there's has point terms, a common. the this strong some reverse, is rates is are at certainly with that a rates

know, include of of subordinate perspective, all in would are the securitization. retention, the some the that credit of part we potentially the estimate X% you securitization structure. as That to retaining, well X% From plus as terms of securities securities, interest-only a in,

although those thickness Choice. of So, of transaction than retaining, at typically to retaining part obviously targets Select even, an on the the level, return at a Sequoia, not which is extent, we're what unlike attractiveness, a high higher is we're and significantly what

Matthew Howlett

coming more jumbo next question. These Yes, these jumbo securitizations attractive are there that relatively my the Redwood practically market. amended about space? anything what in traditionally the out, done that is structures in was investing versus you've

Christopher Abate

was years market mean, sense Yes, XX XX hit to think I to like the that put the the more we similar I I on can returns. where in work head Dash this better capital ago. to just liken or jumbo nail the or space at

lessons and we've we from here experience apply and gained specialty learned to them And about and the some be really so, finance of our when we've think as role jumbo in involved the here. meant take a we're company, markets

Matthew Howlett

of Got Choice show a the of sort that sort mean, I you guys, and you've take, well, bucket while. the issuance grown you you that's that next program flat it. you're you securitizing, question, and been My have third-party for where

deals Redwood's some of of creating. given to know prime be I start banks. out from conduits with non-QM in anything comes you're aggressive banks expected curious viewing these been willing the I that was the investing past, today, these do out, even third-party the originations or we Redwood jumbo, non-QM some come the see you're how how big deals GSE in pretty third-party that As reform? with mean, just banks, I will

Christopher Abate

liked Yes, Matt. We've shied because away, we value but really haven't proposition. the

because so been we've a been deals, raw more on create one are we've rather reasons progressively gotten have themselves. organic for prices high. why gotten asset so of material the as So, It's gains, focused to not the sourcing work. doing the said, optimization capital lot but we've to than of deals great great for and It's putting the

pricing. if said, supply increase countering significant in there's that That should have a effect on a

looking always that the going we're certainly at opportunities becoming third-party with opportunities in see, up, and the we and more supply open can see So, we attractive. market,

Matthew Howlett

was been active Great. watching, you've doesn't that a so access Chris, on comment last letting until curious -- line XXXX, I know expire There on And to maybe just FHLB REITs reinsurance. captive on regain question's lot. front. a the you're Thanks. you're the what hearing

Christopher Abate

is expiration in I grandfathered of and XXXX. regime set FHFA so that aware stated it. have that them I've expiration at prime very January for say the I the the of should probably earlier is the But to aware Steve time, some of of apologize. addressed QM and ready not for personally Sure on, of of new patch with there's top lot this made is speak. captives which a But the going I on January XXXX right can

they're GSEs liquidity folks business the assume helpful. So, of be in the step sector, we've some the private going of that that line that up from they clear to is for if need to this to moving been not very

for and safety infrastructure other it's members. think in is essence of that solution system, first soundness real and the foremost, I the into of and resides forms the taking whether or ensuring the captives account,

think, regulator bit the FHLB a at are, and this something be the think removing is there think gaining the soundness foremost, solution. is point, compelling we're the them patch hopefully, captive within can greater I I from but of GSE issue behind and But QM and certainly issues quickly conservatorship. that initiatives, and Washington, is for is I those the if some, I advocating But candidly, ensures little of a think and that safety notoriety first the some more this privatization system, receptive. or

Matthew Howlett

Great. Thanks for that.

Operator

question follow-on from ahead Bose a go We have sir. Please KBW. George,

Bose George

I about question I SFR -- the a question color on the quite some so Matt's that. just the was just of to portfolio. does bit I between also, the the on the Thanks. portfolio just at loans? on And thought least vary I Great. higher, up coupon Actually, thought BPL how yield and the follow wanted it on wanted the existing bridge

Christopher Abate

or your Bose, BPL clarify, returns is versus Sure. question -- Sequoia to just first the on

Bose George

the doing just the you're there well. the No, as single-family, investor SFR, stuff

Christopher Abate

SFR. Yes, higher to SFR to points so was than to borrower or loans in but for the the specific in of at -- coupon doesn't in that is about The points the XXX coupons Bridge platform average those and terms coupon my include response XXX loans. basis origination, X% Matt are the

Bose George

Okay, great. I that. to confirm wanted Thanks. Yeah, just

Christopher Abate

You're right.

Operator

for concludes are time. this you There have a today's This questions and Thank at joining no pleasant day. teleconference. further

Redwood Trust (RWT) 31 Oct 192019 Q3 Earnings call transcript