Redwood Trust, Inc. (NYSE:RWT) Q4 2023 Earnings Conference Call February 20, 2024 5:00 PM ET
Company Participants
Kaitlyn Mauritz – Senior Vice President, Investor Relations
Chris Abate – Chief Executive Officer
Dash Robinson – President
Brooke Carillo – Chief Financial Officer
Conference Call Participants
Rick Shane – JPMorgan
Don Fandetti – Wells Fargo
Doug Harter – UBS
Kyle Joseph – Jefferies
Stephen Laws – Raymond James
Eric Hagen – BTIG
Steve Delaney – Citizens JMP Securities
Operator
Good afternoon, and welcome to the Redwood Trust, Inc. Fourth Quarter 2023 Financial Results Conference Call. Today’s conference is being recorded.
I would now like to turn the call over to Kaitlyn Mauritz, with Investor Relations. Please go ahead, ma’am.
Kaitlyn Mauritz
Thank you, operator. Hello, everyone, and thank you for joining us today for our fourth quarter 2023 earnings conference call. With me on today’s call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, 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 and 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 and Form 10-K, which provide description of some of the factors that could have a material impact on the company’s performance and cause actual results to differ from those that may be 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, which is available on our website redwoodtrust.com.
Also note that the content of today’s conference call contain time sensitive information that are only accurate as of today. And we do not intend and undertake 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’ll now turn the call over to Chris for opening remarks.
Chris Abate
Thank you, Kait, and thank you all for joining us today for our fourth quarter earnings conference call. As I often do, I’ll begin with some commentary around Redwood’s broader strategy and market positioning for Dash and Brooke cover off on our operating and financial results.
In 2023, Redwood entered its 30th year as a public company. We took this milestone as an opportunity to complete a corporate renewal of sorts and to position the firm for the next big housing finance cycle. For the last mile of the outgoing cycle has been stubborn, especially given the early year sell-off in rates. Our goal has never been to perfectly time that trade. Rather, we’re working to ensure that the winds of change in housing finance are squarely at our backs, as market activity begins to pick up and regulatory changes begin to take shape. Putting it all together, we are on the precipice of several operational and strategic milestones that will help drive our story and our earnings in the decades to come.
The big part of last year’s renewal was to strengthen our capital position. This included reoptimizing capital allocated across our business lines and building a significant pool of unallocated excess liquidity to be squarely for offense, as market trends begin to shift. We accomplished this through the completion of a number of financings in the fourth quarter as well as an inaugural unsecured debt offering in the first quarter of 2020.
The second facet of our renewal was to boost our operating efficiency. As Brooke will highlight, we achieved our goal of a 5% to 10% expense reduction in 2023, landing on a high end of that range. In 2024, we have a similarly ambitious goal of further boosting efficiency through scaling our businesses and continued cost reductions.
As we mentioned previously, over the course of the last year, we began deemphasizing direct portfolio investing in favor of co-investments in joint venture partnerships with leading private credit institutions. This strategic shift carries with it a number of benefits to our shareholders.
First, these ventures are formed with large capital providers, who have long-term strategic allocations to our core product offerings.
Second, these joint ventures create a pre-established and reliable takeout for our products that enhances our liquidity and pricing power, ultimately resulting in more predictable revenues and profitability. This includes not only investment returns, but also recurring fee streams earned in overseeing these joint ventures.
Finally, these partnerships help us organically scale our operating platforms at a much faster pace than we could achieve on our own, ultimately strengthening our franchise and supporting further earnings power from our platforms.
The establishment of new and accretive joint ventures is not merely an aspiration of ours. After announcing one such arrangement in 2023, we expect to continue forging partnerships with additional light vehicles in the near-term for 2024.
When it comes to sourcing the raw materials to feed our joint venture partnerships, we remain optimistic that the prospect of major bank regulatory rule changes coupled with the balance sheet pressures that many depositories already face will compel more of these institutions to partner with Redwood. This should in turn open a vast big spigot [ph] of loans for our operating platforms that for years went straight to bank portfolios often without the underwriting rigor demanded by the capital markets.
Well the proposed Basel endgame regulatory changes continue to receive an onslaught of opposition from paid lobbyists. It does not change the fact that many banks still require additional risk capital for an outside capital partner to prudently manage their asset liability exposures associated with bond duration mortgages.
Furthermore, the long predicted stresses now emerging from bank CRE portfolios make the solutions we offer all the more accretive. With this in mind, we see banks looking for solutions and not waiting around for regulations to be finalized.
This is evidenced by the number of banks we are now onboarding and the volume growth we are beginning to see and expect to increase over the course of 2024. This growth is notwithstanding any additional benefit that would come with a sustained decline in mortgage rates.
We ended 2023 having secured new or renewed jumbo flow relationships with almost 70 banks. Onboarding new banks can be challenging due to the work stream changes that working with an outside capital partner often requires, but as these value partners make the transition to working with us they’ve been won over by the expertise of our talented team, our speed to close and our seamless execution.
As our engagement with banks ramps up, it’s important to note that our commitment to our deep base of non-bank originators has never been stronger. The message we have is those to all our origination partners for their banks or non-banks is the same. You will operate more safely, reliably and efficiently with a trusted partner in Redwood.
Complement our focus on first-lien residential loans, we’ve continued to invest in our new home equity investment platform Aspire. Today, home equity remains the largest untapped market and housing finance. Housing affordability at its lowest level in decades, homeowners continue to look for innovative ways to access the equity in their homes as opposed to moving.
Since launching Aspire last year we have grown our operating footprint with plans to extend to as many as 15 states in the coming months. To further address the opportunity we see in home equity. We also launched a traditional second lien mortgage product to our network in January. Combination of second-lien loans and HGI has resulted in a unique coordinated solution set for our origination partners.
Our residential investor loan platform CoreVest is also beginning to benefit from the pullback by banks in anticipation of higher capital requirements for investor loans. As we noted last quarter, we have been advancing negotiations with several banks on partnership opportunities that would allow us to add access to our existing pipelines with an eye towards offering our broad product set and deep capital markets experience.
As we think about the year ahead and observe a period of heightened stress for many commercial real estate borrowers. It’s worth reminding our shareholders that our business remains squarely focused on residential housing finance whether single-family or multifamily focused.
All of our assets are mark-to-market through our GAAP income statement offering confidence that our GAAP book value reflects prevailing market conditions. This is important to convey, as industry concerns continued amount over the adequacy and trajectory of C-suite based accounting alternatives.
As we take stock of these past 30 years. We’re extremely proud of the role Redwood has played in providing liquidity to parts of the residential housing market not well served by government entities. The long-term support of our shareholders has allowed us to continue pursuing our corporate mission of making quality housing, whether rented around accessible to all American households.
Our business is built upon the belief that the best opportunities are usually found through initiatives that others won’t pursue or trends they perhaps don’t foresee. In fact, we believe that there is no one better positioned to support the changing housing finance landscape in Redwood. We’re excited to share our thoughts what we see as this unique opportunity for our business as well as our current market outlook and corporate strategy at Redwood’s upcoming Investor Day scheduled for March 19th.
I’ll now turn the call over to Dash.
Dash Robinson
Thank you, Chris. I will now cover the performance of our businesses before handing it over to Brooke to cover our financial results in more detail. Residential Mortgage Banking continued its strategic momentum notwithstanding a modest quarter-over-quarter reduction in volume driven largely by seasonality. As Chris articulated, even though the timing and substance of the Basel end-game rules will inevitably evolve, bank management teams are prioritizing the ability to distribute 30-year fixed rate mortgage risks as the economics for retaining these loans have changed dramatically given the end of the era of cheap deposits.
This takes commitment and time especially in aligning the standards of the capital markets with internal processes and approach. As such, we’re pleased to be actively engaged profitably with sellers that control an estimated 60% of jumbo market share, including 70% of the largest 20 banks with active mortgage businesses.
Overall for the fourth quarter, we launched $1.2 billion of loans at gross margins of 111 basis points, up from 80 basis points in the third quarter and above our historical target range of 75 basis point to 100 basis points. Approximately 25% of the quarter’s volume was bulk activity with both banks and non-banks.
Over 55% of the quarter’s total lock volume came from banks, up from 38% in the third quarter. We purchased $1 billion of loans close to 15% through our unique program with depository that allows us to settle loans directly into securitizations, optimizing our capital usage. We are complementing our bank activity with a continued focus on independent mortgage bankers or IMB’s a critical group of partners whose business models have always centered around distribution to capital partners such as Redwood.
All in, we estimate our $2.8 billion of locks in the second half of 2023 to represent approximately 5% of total jumbo market share compared to our historical range of 2% to 3%. While higher interest rates continue to impact overall industry volumes we still believe our strategic progress is just beginning and deepening our partnerships with large market players.
As such, we see significant opportunity to deploy further capital into this strategy because we support our banking partners and grow, including through the home equity financing products that Chris highlighted. Brooke will speak more to this when she covers our outlook for capital deployment.
Finally for this segment securitization markets continued to be favorable, and we followed our two fourth quarter Sequoia transactions with two more thus far in 2024 backed by approximately $800 million in loans.
Receptivity for these deals has been strong and this execution has supported further momentum and locks, which quarter to-date total of $750 million with continued strong credit characteristics, including 772 average Fico and 72 average LTV at an average gross coupon of 6.96%.
As Chris mentioned, the broader pullback by banks is also a potential tailwind for CoreVest. The last few weeks have brought refreshed dialogue around risks in commercial real estate portfolios of banks and other large portfolio lenders. The fundamental challenges that exist in certain commercial segments have driven many traditional lenders to the sidelines, opening up a potentially attractive client funnel for our platform once lending conditions normalize. CoreVest continues to prioritize lending strategies backed by single-family and small-balance multifamily properties, the latter typically 20 units or less.
Reduced demand from sponsors amid persistently high rates cause quarterly fundings to drop 17% from the third quarter to $343 million. Term loan funding volumes increased 10% however, and we continue to commit capital to our Single Asset Bridge or SAB platform and further develop other bridge product offerings. Notwithstanding the fact that rates remain elevated, we see runway to grow term production including in the potential to refinance portions of our bridge book as sponsors work towards stabilization.
We continue to see several areas of heightened interest from real estate investors. After launching our debt service coverage ratio or DSCR loan product in the third quarter, we saw a 20% increase in fundings in the fourth quarter for these loans, alongside a 30% quarter-over-quarter increase in SAB production. As was the case in Q3, CoreVest were also engaged around our renovate to rent and built around products including aggregation lines, typically the Dominion of banks that support lease-up strategies one certificates of occupancy are procured.
Our investor loan products continue to attract retention from Capital Partners. We distributed $111 million of loans through whole loan sales and sales to the joint venture that we closed in mid-2023. Our fourth quarter bridge loan securitization was also a significant achievement and that it allowed for increased capacity to finance our various loan types. Flexibility, we expect to be valuable over the next 24 months as lending conditions evolve.
Turning to our investment portfolio. Our activities since the end of the third quarter reflect progress in the evolution of our capital deployment thesis, including active portfolio management to recycle valuable capital and manage risk. Over the past several quarters, we have spoken regularly of the significant value embedded in our broader investment portfolio. This includes the net discount to face value within our books and relatedly our ability to harvest additional capital given low levels of leverage and continued strong credit performance.
The fourth quarter brought meaningful progress on this front, as we completed three securitizations out of our investment portfolio. These transactions included a resecuritization of our reperforming loan book, our first rated securitizations backed by home equity investments and a $250 million revolving transaction backed by bridge loans. We have also continued to optimize our portfolio mix through the continued sale of non-strategic assets.
Credit performance within our portfolio remained strong overall. As Chris emphasized, our portfolio is back squarely by residential credit. Much of it seasoned and created organically through our operating platforms with over 85% of our overall capital underpinned by single-family housing. Our RPL, jumbo and single-family rental loan portfolios all saw stability or declines in 90-day plus delinquencies since the third quarter as borrowers remain motivated to preserve the equity in their homes and protect their advantageous interest rates.
Performance in our single-family bridge portfolio, which now represents close to 60% of the overall bridge book, has remained resilient. Our SAB portfolio, an area of anticipated growth continues to pay down as expected and we are replenishing our revolving bridge securitizations predominantly with new SAP production. Additionally, sponsors continued progress with build for rent projects, many of which are now in the lease-up phase.
As we highlighted in last quarter’s earnings call, the multifamily bridge portfolio remains a key focus area as borrowers grappled with the prospect of an extended period of higher rates. This portfolio largely financial sponsors seeking to do modest amounts of improvement to the property, drive rents, and either sell or refinance.
Loans were originally underwritten with average debt yields close to 9% and are underpinned by units fetching around $1,000 per month or less in length. A portion of the market less exposed to the upcoming delivery pipeline.
While fundamentals behind these strategies, notably occupancy rates and equity in the properties remained strong, 90 plus day delinquencies have increased, driven largely by sponsors facing increased costs who lack the resources to bring the project to stabilization.
This creates opportunity for fresh capital that we believe is supportive of ultimate recovery to our loan. The book remains actively managed and for approximately 30% of the portfolio, we have seen sponsors inject fresh equity or perform under recast terms and we estimate an incremental 20% of the multifamily bridge book qualifies for a term refinance today.
And with that, I will turn the call over to Brooke.
Brooke Carillo
Thank you, Dash. We report a GAAP net income of $19.3 million for the fourth quarter or $0.15 per common share compared to negative $32.6 million or negative $0.29 in the third quarter, resulting in a fourth quarter GAAP return on equity of 7.3%.
The significant quarter-over-quarter increase in GAAP earnings was largely driven by $15 million of positive investment fair value changes compared to negative $42 million in the third quarter. This reflected the impact of declining rates and spread tightening on our investment portfolio, coupled with continued strong underlying performance of our residential consumer assets.
Net interest income or NII was essentially flat this quarter as a modest improvement in bridge NII was offset by lower portfolio NII from securities sold and higher interest expense on new financing activities.
As we said in the third quarter, we still anticipate recovering a portion of the associated interest with bridge non-accrual loans. Overall NII is expected to trend higher beginning in the first quarter.
While GAAP earnings improved in the fourth quarter, the net effects of the common dividend and equity issuance cost book value per share to decline 1.5% from the third quarter to $8.64. Importantly, we achieved a positive total economic return of 0.3% for the fourth quarter.
Earnings available for distribution, or EAD, was $7.1 million or $0.05 per basic common share for the fourth quarter as compared to $12.6 million or $0.10 per share in the third quarter. The decrease in EAD was primarily due to lower income from mortgage banking activities on the quarter.
Income from residential consumer and mortgage banking activities decreased slightly in Q4 as the effects of seasonal factors on jumbo lock volumes were somewhat offset by a 31 basis point improvement in margins.
Income from residential investor mortgage banking activities decreased from the third quarter as bridge fundings were lighter and spreads on term loans normalize compared to the third quarter were spread tightening benefited loan inventory.
Note that in the fourth quarter of 2023 we evolved the calculation of EAD, removing the previously presented line item titled change in economic bases of investments. Additionally, we changed the presentation of our income statement at ATI income net, which was $11.7 million this quarter and was previously captured within investment fair value changes net line item.
Income associated with ATI is attributable both to embedded accretion from underlying options on home and periodic fluctuations in value from factors like home price appreciation and is all captured in our non-GAAP EAD measure.
As previously discussed, we’ve continued to fortify our balance sheet and build our liquidity. Our unrestricted cash and cash equivalents as of December 31st were $293 million, which increased to $396 million at the end of last week. This represents a cash position that is $190 million higher since the end of the third quarter. On last quarter’s call, we pointed to the low recourse leverage we carry in the investment portfolio and the opportunities that afford us to raise organic capital.
Our securitizations during the fourth quarter underscored our ability to capitalize on that dynamic. And we ultimately generated $125 million of capital from those financings, as well as the two new BPL lines that we established in the fourth quarter, which gave us additional flexible capacity. Importantly, the term financing activities from our securitizations allowed us both to reduce our marginable securities repo and our allocation to third-party portfolio assets while preserving investments on balance sheet that represents the majority of our $2.68 of portfolio discount.
As a result of all activities on the quarter, we reported total recourse leverage of 2.2x, down slightly from the third quarter. Importantly, recourse leverage in our investment portfolio decreased from the third quarter and was 0.9x at year end. At December 31st, we had excess warehouse financing capacity of $2.1 billion, which we’ve since grown to $2.6 billion to date.
We expect to increase our capacity further to support the continued growth of our operating businesses. In addition to our existing cash position, we have approximately $318 million of unencumbered assets today that remain a continued potential source of capital, which can serve both to fuel growth of our mortgage-banking businesses or continue to repurchase corporate debt across our term structure.
We have delivered our capital structure through accretive convertible debt repurchases, as well as the organic capital created and common equity issued through our ATM program. From the beginning of 2023 through today, we have retired over $200 million of convertible debt, reducing our amount of convertible debt outstanding by approximately 30%. We are also taking advantage of the opportunities that we see in front of us today in mortgage banking. As such, during the fourth quarter, we viewed the opportunity to raise common equity as a value-accretive strategy given the blended mid-teens deployment returns we see today.
In light of the growing opportunity for residential consumer mortgage banking, we increased the capital allocated to this segment by $150 million since the first quarter of 2023, which we expect could grow another $50 to $75 million in the near to medium term. The decision to raise capital for this opportunity comes with a significant focus on the anticipated earnings accretion and future book value growth these earnings should create for our taxable subsidiary.
We began last year by guiding the market that we would lower general and administrative or G&A expenses by 5% to 10% from 2022. While G&A increased quarter-over-quarter, primarily as variable and long-term incentive compensation increased commensurate with the improvement in quarterly GAAP earnings, we ended 2023 with 128 million of G&A, which represents a 9% reduction year-over-year. We remain committed to controlling operating expenses to achieve further cost savings of another 5% to 10% this year and sustain profitability while balancing strategic long-term opportunities.
Looking ahead, we feel confident about our strategic positioning given our excess capital. We look to continue opportunistic deployment of capital into products with attractive return profiles that are complementary to our mortgage banking businesses to support the dividends while we transition to a more capital-like model and mortgage banking returns crystallize at scale.
And with that, operator, we will now open the call for questions.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, at this time, we’ll be conducting a question-and-answer session.
[Operator Instructions] Our first question comes from the line of Rick Shane with JPMorgan. Please proceed with your question.
Rick Shane
Thanks guys for taking my question this afternoon. I’d like to talk about the dynamics on the origination side and the residential consumer mortgage banking business. Obviously, there was a bit of an uptick in the quarter on margin. You cite that it’s above the historical average. I’m assuming that that is a function of the movement rates and that being favorable to gain on sale. And if you could talk about that dynamic and what you’re seeing in the first quarter that would be great?
But more importantly I’d love to talk about what you’re seeing through the channel on. Are you seeing as capacity comes out or originators being more disciplined about margin and delivering loans that are more valuable as they’re not chasing volume as they would at the inflection in the cycle?
Chris Abate
Sure. I will. Hey, Rick it’s Chris. Thanks for the questions. I guess, just to just to talk about resi for a few moments on. We feel extremely good about our trajectory on some of this is in the context of housing finance market that’s been extremely challenging. The origination market is probably the smallest. It’s been in a number of decades.
So to be taking market share against that backdrop, we feel really good about there’s some things I’ll mention in the last six months we’ve locked loans with 135 unique sellers, which has to be a record for us. Nobody represents more than 5% of our production when you think about other aggregators it’s often the case that a few originators are responsible for half or two thirds of productions that I have and 135 in the last six months with nobody more than 5%.
You start extrapolating that to as this market starts to turn around. Obviously we had a sell-off in rates to start the year. But at some point in 2024 rates should flatten out and start going down. So how we’re positioned for that is extremely good from my standpoint.
So that’s a big part of what we’re bullish about. I would say we did five securitizations in the fourth quarter. We’ve done a few resi deals in the first quarter. I think spread tightening has been part of the gain on sale story. Deals have been met with very robust demand and I think people are really starting to get behind the story particularly in consumer, which is exciting.
So I think for us a lot of it is in today’s call a lot of it is what’s behind us versus what’s ahead of us. And I think for resi and particularly for the balance sheet as Brooke laid out, we’re not we’re not staring down, I’ll call challenges that the banks are dealing with mortgages at cost. We’re not dealing with commercial mortgages and CECL reserves. We all know that trajectory there. I think most people think that there’s quite a bit of pain to go.
So having done what we’ve done over the past year with the balance sheet and is putting ourselves in a position I think we have something like $285 million of excess capital as of today to really go on offense. I think our story is a little bit differentiated from what you might see elsewhere as far as what’s behind us versus what’s ahead of us. But certainly outside of seasonality factors in the fourth quarter, we’re really excited about the volume trajectory of our resi business. It’s still a really tough market.
But again, to have some of these underlyings that we’re seeing are really foundational for this business to take off, particularly as rates start to stabilize
Q – Rick Shane
Got it. Hey, Chris just to circle back what with what I’m curious about is, obviously, we’ve seen demand for your channel partners the originators decline on 2023 was a lot about rationalization of on the supply. What I what I’m curious about is, when you speak to your channel partners are they at a point now where they feel that supply and demand have achieved an equilibrium that is attractive for them to, I mean obviously having a strong exit is important but is there enough volume and enough economics for them on it to support sort of equilibrium basis to make the business attractive again?
Chris Abate
Well, I think obviously, a big part of our business is the IMBs and the non-bank originators, that’s only been in the last six months or so where banks I think were up to 70 banks, which were active with. I’ve been part of that dynamic. I think I think both are in different spots I think with IMBs and some of them have gotten ahead of others. As far as capacity corrections, I think there is some pain to go for some. And for banks, I think it’s really the capital partnerships and we are working with a number of regionals, and it’s really about working with loan officers and understanding the value proposition that we can bring. But certainly, I think I think our pricing has been aggressive. We’re looking to take share at this point, but it’s still a very challenging market. And I don’t think anybody is completely out of the woods, from an origination standpoint because there’s still a lot of capacity out there.
The MBA and others estimate excess capacity. I haven’t seen the numbers recently, but it’s on –we’re definitely not I think at a point of equilibrium, but for us for our business as I mentioned earlier, we’ve sort of dealt with our balance sheet, we feel great about our capital position. And so we’re in a fortunate position to be really aggressive to the extent we want to be and take market share, which we’re doing.
Q – Rick Shane
Perfect. That’s exactly what I was looking here. Thank you, Chris.
Chris Abate
Thanks.
Operator
Our next question comes from the line of Don Fandetti with Wells Fargo. Please proceed with your questions.
Q – Don Fandetti
So — can you talk a little bit more about the outlook for multifamily delinquency trends? They ticked up a little bit, and I guess maybe more broadly, I know investors are worried about supply in some of that kind of hotter multifamily markets. Can you talk about what your thoughts are?
Dash Robinson
Sure Don, its Dash. I can take that on. I may spend just a minute on the on the bridge portfolio broadly, because the contours of that book have migrated — not insignificantly over the past year you know I talked about, sort of the pivot in our production mix over the past five to six quarters really focusing more on single-family strategies, and bridge which was really the original thesis of the business going back a number of years. So, I think broadly we’ve been we’ve been pleased with the overall performance of the bridge book. I think we’re clear-eyed about on some of what’s going on in the multifamily market. Just some context for how the book overall has performed at all, touch on multifamily. In the last year, we saw over $800 million in paydowns in the bridge book cumulatively, which is about 40% of the balance of the bridge book entering 2023. We’re continuing to see some really good buoyancy in the single-family strategies both with SAB, which is an area as I mentioned we’re continuing to grow from an origination standpoint as well as build for rent which is underpinned by generally one to four unit housing.
Those projects are progressing and they’re in lease-up mode in many cases and we’re starting to see real opportunity to term those loans out as well, which again is the original thesis for those types of loans that help the term funnel.
I think in multifamily a few things that I talked about this in the prepared remarks. We are generally financing sort of BB minus type of multifamily. Our average rents in place are about $1000 a month right now, that reflects in many cases 15% to 20% growth on rents from our sponsors, since acquisition but we’re certainly cognizant of some of the headwinds overall.
We do think that that piece of the market is less exposed to some of the supply funnels that we’re seeing for deliveries over the next year or two. But we certainly have seen some sponsors run into issues. I do think when we look at the book, we’ve always talked about getting ahead of issues but also being able to delineate between sponsored issues and project issues and there is an important difference there. I think the delinquency uptick you’ve seen in the book really reflects issues with sponsors that are 60%, 70%, 80% of the way through a project and have just simply run out of the resources to finish it. But there’s a lot of meat on the bone and I think what we found is significant interest from the sidelines and getting involved in projects.
We took a few properties REO this quarter. We have significant interest in those. We anticipate having those under contract soon. And we have some loans which we’re working through actively right now, where either the sponsors are bringing fresh capital to the table or we’re finding fresh sponsorship to do so.
And I would point back just in closing for the response, what I said in the prepared remarks, the multifamily strategy for bridge, we’ve been significantly more selective over the past five to six months, preceding the quarters, it’s been less than 15% of our overall fundings in that period of time.
Most importantly though, we feel like we’ve got our arms around the book and we’ve made significant progress with a good chunk of it. But almost a third of it has had active or fresh equity infused or is performing under some recast terms over the past two quarters.
We think another 20% outside of those is eligible for a term refi today. We have a portion that are delinquent and the rest are really leasing up and running their projects. And so I think we’re – we’re clear-eyed about the broader headwinds. I think we feel good about the markets we’re in and the fact that our projects have meat on the bone for fresh capital. But certainly this is going to be an area we expect to have continued close focus from us over the next two or three quarters.
Don Fandetti
Got it. And my follow-up is just on the dividend. Do you feel like you’re kind of at the right level here?
Brooke Carillo
Yes. I think in our prepared remarks, we did touch on just our overall liquidity position. I think over the last couple of quarters, we have had momentum in both mortgage banking contributed into line of sight for earnings to be covering the dividend and or in this case the portfolio really carried away.
I think last quarter, we did make some comments at the outset on both just the amount of deployable capital we have today. I think that is probably the single greatest contributor outside of near-term significant recovery in mortgage banking to give us line of sight back towards dividend. That combined with some of our commentary on a continued expense target should provide additional support for the dividend, as we go forward. We also have …
Don Fandetti
Thank you.
Brooke Carillo
… a couple of tailwinds with respect to net interest income just from that capital deployment and a continued recovery in some of our rich non-accruals.
Don Fandetti
Got it. Thank you.
Operator
Our next question comes from the line of Kevin Barker with Piper Sandler. Please proceed with your question.
Unidentified Analyst
Hi. Thanks for taking my question. This is [indiscernible] on for Kevin Barker. Just trying to size up the opportunity potentially partnering with homebuilders given housing dynamics, I know you mentioned last quarter you’re seeing homebuilders pivot from a force out of for rent strategies. Is this a dynamic you’re still seeing play out? And is this something you would look to do partnering with the homebuilders going forward?
Dash Robinson
Yeah, this is Dash. That’s a great question on. We look to do that through each of our mortgage banking channels. And one of the reasons we’re trying to do that as I think some of the trends we saw three to six months ago are probably reversing again, candidly if you think about just the strength of the bid from owner occupants with continued buoyancy in HPA on I think some of those trends have probably reverse but that’s a big opportunity for resi mortgage banking. And it’s still one we see in BPL.
But I think the dynamics between just where cap rates are going broadly and then, the owner occupied bed those — those can invert depending on the quarter. And so we still actively look to do that deal in both channels for that exact reason which is those dynamics it tends to shift quarter-to-quarter.
Unidentified Analyst
Thanks Dash. And then a last one for me, I know you guys mentioned it but can you just talk a little bit more in detail on the traction on the jumbo side, now given the large opportunity with the banks facing a high degree of uncertainty.
Dash Robinson
Yeah. I mean some other thoughts there just given the traction we have with so many banks at this point, it’s really become less relevant. The some of the regulatory changes that that you know people banter about. I mean obviously on the common response or the baseline game proposed changes that’s going to take a long time to play out.
But in the immediate term, when you’ve got 4.5% to 5% deposit rates. The area at the era of zero cost capital of banks is over and it’s not nearly as profitable to portfolio loans. And in fact there’s quite a bit more risk just given how much thinner than NIM opportunity is.
And so what we’re hearing from banks as a capital partner makes a lot of sense irrespective of what the risk capital rules might — might say in the future. And so that’s — that’s given us that that’s embolden us and makes a lot of sense when you think about it because Redwood is he’s not an originator, as we like to say and some banks can keep their customer relationships.
We can buy servicing. We can let them keep servicing. And one of the one of the ways we’ve added a lot of value, I would say the past year is helping banks get you’re acclimated to the capital markets from loan file completeness on readiness just a lot of things that you can do parking loans and portfolio.
You can’t do selling — selling loan files and loans into the capital markets. And so, helping banks work through that has been a big part of the, value add that we present. And I think that’s been appreciated.
So what we’re hoping is that the durability of that opportunity is there. And I do think that as we invest the time and the resources to get banks plugged in and online, I think that’s a lot of effort on both sides. And as I said, as rates start to stabilize and come down, we’re really excited about what that means for our business.
Unidentified Analyst
Awesome. Thank you.
Operator
Our next question comes from the line of Doug Harter with UBS. Please proceed with your question.
Doug Harter
Thanks. Can you talk about either from an environment perspective or from a cost perspective, what you need to see happen for the investor mortgage banking to deliver sustainable, attractive ROEs?
Dash Robinson
Sure, Doug, it’s Dash. I can take a swing at that. Great question. Obviously, a huge area of focus. I think there’s a few things going on in that space right now. As you know, we have a very diverse product set, which I think is helpful to us. We’ve seen really, really good progress particularly in our single asset bridge effort, just for context there, we did about $200 million of that product last year and $40 million in January. So the volume trends there are heading in the right direction. We talked about growth in DSCR, things of that nature. We were very pleased with the 10% quarter-on-quarter growth in our term book. But I think the reality of it is we’re being very selective there. I think we’re trying to be respectful of what the market is telling us in terms of just demand drivers and where capital is flowing.
There’s a reality of that business, particularly on the term side and to an extent bridge where uncertainty around rates, where rates are sort of re-elevated as they are today, but there’s a lack of overall conviction around where they’re headed. It just is a reality we have to continue to work through in that business because unlike in residential, these loans, as you know, are not freely pre-payable. So borrowers are making — I call on interest rates for lack of a better term, when they lock in these loans. And when there’s so much uncertainty, you’ve had a 40 bps, 50 bps backup.
In the 10-year, you can make as good a case to 10 years going higher as lower in the next quarter or two. And that sort of uncertainty is a bit of a headwind. But I think in general, we’re trying to pick our spots. So I think lower rates and some conviction that they’ll stay lower is helpful. But I also think in terms of where capital is flowing, we’re just being choosy around opportunities. We see a lot of deals come across our desk every day that frankly may fit other people’s risk profiles better than ours. We talked about the de-emphasis of multifamily over the last five or six quarters. I think that’s a decision we’re very pleased with. If you look at how things have evolved in that space. So we’re going to continue to pick our spots and really leverage the depth of our products. We do think our existing bridge book continues to be a great source of opportunity for term refinance. That’s a huge focus area for our sales team.
And our sales team is busy. Maybe the average loan balances are going to be a little bit smaller than they were a couple of years ago. But we feel very good about how we’re positioned, particularly when you bring in the opportunity for the banks as another funnel. We haven’t talked as much about that in residential investors we have in jumbo, but that’s a big opportunity. It’s one we’re well positioned for, but we don’t want to rush back in safer areas like SAB where we’re really leaning in. We’re going to continue to be, I think, selective because I think we’re going to be paid to be more selective through time here in 2024.
Doug Harter
Great. And then I believe, Chris, you mentioned that you had — do you kind of view that you had $285 million of excess capital today. Is that kind of factoring in the remaining 24 convertible maturity? Or just — I just wanted to make sure I heard that number right?
Chris Abate
No, I’m not fully. I think we said, we had $396 million of cash as of last week. We have $318 million of unencumbered assets. So we kind of need to factor all of that into the convert maturities. But I think I think the headline is, we feel very well capitalized right now. We, as we mentioned, we completed five securitizations in the fourth quarter, so we feel like we are in a position to get significantly more aggressive at a time when I think a number of our competitors are facing pretty substantial headwinds. I do think that having the benefit of taking months with fair value accounting I think about where the stock is trading versus book and the quality of book. That’s something that I think differentiates this business to a certain degree.
So I think we’re feeling very good about, certainly very good about the converts, but also very excited to be deploying capital opportunistically and we very much see a path towards covering the dividend. We’ve got a lot of ways to get there. We haven’t spoken much about the JV opportunities that we foresee, but those are those are things that behind the scenes are in later innings. So we’re excited about things that we can get done in the first half of the year if not sooner. So that’s a high level where capital is.
Doug Harter
Great. Thank you.
Chris Abate
Thanks.
Operator
Our next question comes from the line of Kyle Joseph with Jefferies. Please proceed with your question.
Kyle Joseph
Hey good afternoon. Thanks for taking my question. I just wanted to pick your brain on. I know it’s early but on the closed end second lien product, just how you’re thinking about the size of that market margins versus the existing book and whether that’s a bigger opportunity for you and how you see that versus Healon [ph]?
Chris Abate
What close-in seconds is a product we’ve rolled out very recently in early 2024. The way we’re attacking that market is a combination of traditional product like a closed-end second along with HEI which is something we’re still very bullish on. As I mentioned in my remarks, home equity is absolutely the biggest untapped market and housing finance. We’re all over that internally. And I do think to a certain degree, the path of rates will be a big factor. But you’re seeing it’s very tough to move on. Mobility is extremely constrained with most the vast majority of the country having termed out if you will, their homes at 3% 4% or 5% rates. So I think we we’re not as focused on the block as we are on closedowns. But I think, we’re very focused on that sector and Aspire which is our HEI start-up, homegrown start-up. We expect originations there to go up hopefully precipitously, as we as we get licensed in more states and get the business scale through origination network.
Kyle Joseph
Yes that’s it for me. Thanks for taking my questions.
Chris Abate
Thanks.
Operator
Our next question comes from the line of Stephen Laws with Raymond James. Please proceed with your question
Stephen Laws
Hi, good afternoon. A couple of follow-ups. First, talking about the delinquency metrics kind of ticking up some on the multiyear the core vest side. Can you talk about the outlook, say over the next two to three quarters as you continue to work through that, where do you think those peak ends and talk a little bit about resolution timelines that you expect to take losses as you resolve these? Do you feel like the collateral there supports your attachment point and maybe touch on the build-to-rent that went into REO that I believe the footnote said is under contract for sale this quarter? Maybe it’s already happened, but can you give us an update there and whether you expect to take a loss on that?
Chris Abate
Sure. I think broadly Steven we’ll probably stop short of predicting where DTs are going. But I think we continue as I mentioned I feel very good about the real estate, that’s underpinning us. The resolutions that we’ve had and generally have had either no severity or severities in the single-digits where we’ve had them.
Speed and honestly creativity of resolution and just the discipline around that process is important. The properties that we took REO over the past couple of quarters, we did so cooperatively. Our loans are structured with a lot of different hooks that can incentive borrower to ease the resolution more quickly rather than waiting the customary year or two for foreclosure depending in the state that you’re in. So, I think we’re pleased with that.
Importantly, we have a lot of demand for the real estate, because like I mentioned earlier, in general, there’s a lot of meat on the bone from these properties. There’s a lot of capital on the sidelines that I think centers and opportunities beginning to deploy.
We haven’t closed that built-for-rent project, we expect to do that soon. We don’t expect much if any loss on that. We have two other built-for-rent projects that are actually leasing up where we got you know actually some reverse inquiry interest this morning through a broker that’s interested in purchasing those particular projects.
So, the good thing is for our book, particularly, with the demand drivers for leasing and the fact that in many of these cases, it really is just down to lease up as opposed to a significant amount of operational risk with renovation, I think we feel good about the general outsized demand to step in and recapitalize projects.
But most importantly in terms of the book, in general, a lot of sponsors are sticking with it. They’re driving rents. In the vast majority of cases, they’re replenishing reserves. They’re doing all the things required to you know to get these projects over the goal line and as such, we talked about 50% of the book and what we feel is really good shape in terms of performing or eligible for our term refund.
So, we’ll see how things go. Like I mentioned, we’re clear-eyed about some of the headwinds that remain in that space. But given how the book is situated, we’re optimistic for overall good outcomes.
Stephen Laws
Appreciate the comments there. And then a follow-up on the liquidity question that’s been touched on a couple of times. Can you talk about whether you’ve used the ATM any year-to-date? How you think about evaluation of issuing off that issuing stock at various levels versus book for given what investment returns are as you deploy capital? Maybe update us on what’s remaining under that authorization and whether you expect to re-up that?
Brooke Carillo
Yes. Great questions. So, a couple of things. As you we have not utilized ATM year-to-date. We and we did and I explained some of our rationale there. A lot of the proceeds that we raised in the fourth quarter really net earmarked for the growing opportunity in residential. I think we used about net $50 million of capital for resi, which has really grown every quarter throughout the year, throughout 2023.
We effectively issued around close to 90% of tangible book. You know based on that math we were looking at kind of like a mid-teens blended returns. That’s a pretty rational payback. Here we think based on the earnings accretion that really drives of our future book value growth through our taxable rate subsidiaries over time. And so it was — those can that math that we were looking at that drove the ATM utilization.
We also look at it really comprehensively with some of the other actions taken on the financing front it was a kind of broader deleveraging that we’ve done and that we’ve done of our capital structure to really term out some of our convertible debt, reduce our marginable securities repo and just kind of net reduced our overall convertible debt maturity stack and all of which we think is very accretive to our shareholders over the long term.
We continue to look at — the residential mortgage banking opportunity really on an kind of an earnings accretion basis to continue to fund that opportunity. I would also just note that it’s — given the we’re very cognizant of how we deploy those proceeds and over then — over what time period to make sure that we are crystallizing our assumptions on the earnings accretion for the ATM does afford us a nice way to somewhat match funds proceeds. So that been said our stock is off of levels that we are — in the fourth quarter.
Stephen Laws
Great. Appreciate the comments. So look forward to seeing all of you next month. Thank you.
Chris Abate
Thank you.
Operator
Our next question comes from the line of Eric Hagen with BTIG. Please proceed with your question.
Eric Hagen
Hi. Thanks. How are you doing? Hey, going back to your comments around the NIM. and looking at the cost of funds on slide 32 how much of that balance would reprice and over — what kind of timeframe if the Fed were to cut interest rates?
Brooke Carillo
We have a pretty — we have a I would say a pretty pro rata maturity schedule for our recourse leverage that really rolls throughout 2024 — somewhat and on a somewhat balanced basis. And so a lot of our repo lines are a year in nature but one of the most important things that we did in the fourth quarter was with the amount debt that we raised and into the first quarter with the unsecured debt is a lot of it has pretty attractive prepayment flexibility and optionality and with largely it being callable within the next two years.
So we really do think it’s a good option on where we are in on the rate – in the rate landscape because we’re either going to crystallize those our turn through mortgage banking in the near-term and at attractive gain on sale margins or put on longer-term investments at a pretty attractive return profile.
Eric Hagen
Right. Hey, essentially all of the securitized debt is fixed rate, is that right?
Brooke Carillo
Yes, that’s correct.
Eric Hagen
Okay. And then the investment portfolio and the capital allocation on Slide 29, do you feel like you can draw any more leverage against that portfolio and which assets are held unencumbered at this point? And what kind of advance rate do you think you can draw against those? Thanks guys.
Brooke Carillo
Good question. Sorry, I didn’t mean to cut you off. Chris mentioned we have another as of today we have about 318 million of unencumbered assets. That centers largely around some of our organically created subordinate securities through capital in RTL that we’ve created through our mortgage banking initiatives, same with on the Sequoia side. We have some of our reperforming loan securities. Other multifamily we have a lot of what we did last year was selling some of our less strategic or fixed rate third-party assets out of gain into this environment, just given that they were fixed rate bonds that were largely non-strategic and didn’t carry as well as the rest of the investment portfolio.
So I think that we’ve I think there’s a couple of hundred million to raise there. And just given the advance rate, some of these are securities or assets that are already financed elsewhere, and so we have on pretty tangible data points around lenders’ appetite for those assets. And then some of them we just have chosen not to finance and to mitigate some overhang of interest.
Eric Hagen
Got it. Thank you guys so much.
Chris Abate
Thanks, Eric.
Operator
Our next question comes from the line of Steve Delaney with Citizens JMP Securities. Please proceed with your questions.
Steve Delaney
Thanks. Appreciate it. So Chris you mentioned the upcoming 30-year anniversary. So how many of those 30 years have you have you been sitting at Redwood?
Chris Abate
Well, if you count the dog years, it’s a lot more than 30 years, I think it’s a 18 or so.
Steve Delaney
Okay. Gosh, I was going to be in the 20s, but I was data you, sorry about that. No, seriously, congrats for both the company, obviously, for that great record overall that time and for your longevity and leadership there as well. Well done.
Just looking at the jumbo volume in the last two quarters of the year 1.6, 1.2 would you think next year if we were to for now until we see some potential rate relief, which we may or may not get. Would you guys think $5 billion to $6 billion is a reasonable starting point for jumbo production next year? Or am I being too conservative?
Chris Abate
No, I think that $6 billion range is definitely something we think is achievable. Obviously, rates are the big question mark and so, we can’t predict the path of rates. But I do think that what we’re seeing below the surface, really gives us confidence that as rates start to flatten and come down, the business is in a great position to scale. We are — there’s so much to do still with banks. I feel like we’re just kind of scratching the surface with this getting banks online various stages. And as I mentioned in my remarks, when you when you look at how the business changed after the great financial crisis, the vast majority of the jumbo business sort of moved on to bank balance sheets.
And we think that’s going to change. We think the regulations are going to change but we also think that the incentives that banks had to do that are no longer present. You don’t know longer have zero cost capital. You’ve got a lot more scrutiny from an asset liability management perspective. You’ve had some banks go down. So for us, you’ve got this massive jumbo portfolio opportunity that we haven’t seen in 15 years. So, irrespective of kind of rates, we’re just very excited to be looked at as a capital partner again for that piece of the business that just hasn’t been up for grabs if you will on the POS side.
People ask why it’s securitization volumes. It stayed low after the great financial crisis. It wasn’t because there were no jumbo loans just to being originated is because they were all in ending up on bank balance sheets. So to the extent that changes, that’s going to mean really great things for us and the POS market. So that’s really why we’re excited. We think that there’s structural changes happening with how capital is going to flow through the sector. And we noted that also applies for the investor loan business as well for CoreVest. We’re seeing great inbound from banks who are now dealing with seasonal challenges. So, there’s just a lot of headwinds out there. And to be sort of hopefully on the other side a lot of that is why we’re probably optimistic on today’s call.
Steve Delaney
Yes. I’ll tell you that duration, that 30-year fixed rate duration whatever it works out to belongs a lot better in the bond portfolios in Boston and LA than it does on bank balance sheet. That’s as far as just for the stability the financial system as a whole, so no question. Thanks for the comments.
Chris Abate
Thanks Steve.
Dash Robinson
Thanks Steve.
Operator
Ladies and gentlemen, this does conclude our question-and-answer session. It also does conclude our conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
