It’s the difference between what the loans were worth that you put into the securitization, what your securitization expenses were, right, because there are expenses in doing securitization, legal, underwriting, et cetera. And then what the retained tranches are worth that you are taking back. And so that sort of gives you, let’s say, a gain on sale, even if it’s not necessarily, accounting-wise, a gain on sale. And for that, that’s going to be very variable. So, to make a long story short, that sort of securitization gain is going to be very variable depending upon everything from how well we hedge the loans going into the securitization, as Mark mentioned sometimes we use IG hedges now, in addition to interest rate hedges, we use TBAs sometimes, or interest rate swaps depending upon what we think of the basis.
But whatever, we’ll have a gain on sale or a loss on sale, hopefully a gain on sale when we do that. So that’s more of a one-time event, right? And then we’re going to be retaining the tranches. I don’t think it’d be giving away too much to say that if you look at the tranches that we retain, what are they? They’re subordinated tranches that have principal, maybe the single B rated or non-rated portion of the deal. And then there’s an IO, right. And so we hold those knowing that in some cases we’re subject to risk retention and are not able to sell those, and we’re going to own those basically forever if and until we call the deal. So we’re going to value those where we think the market values them, and we try to be conservative on that. But if you look at the spreads and where those deals price, you can sort of extrapolate.
These are quite wide and we can get financing on them as well. So as JR mentioned, we’re well into the mid-teens. In terms of the IOs, do we want to sort of, and call rights are another thing that we retain as well, and we value those as well, because those often have value. Now, our call rights on the super old deals that we did with really low coupons, those don’t have much value now. So as we revalue those every quarter, those have gone down in value from where they were a few years ago but when we price one of these deals, we’re using what kind of an OAS on the IOs, generally speaking, Mark, do you? If you don’t know off the top of your head, we don’t need to, I think, answer that. But it’s extremely wide, right. I mean, this is something where even before leverage we’re in the teens, I believe.
Mark Tecotzky: Yes, you’re low teens unlevered. And the other thing I would add, Eric, is if you look back, we have called a lot of old securitizations. Now, those calls were executed before the big sell-off in 2022. But those call options can prove very valuable because as spreads tighten as the loan season, the rating agencies look very favorably on loss expectations of seasoned loans. So we’ve called our 2017, 2018, most of our 2019 deals, and we, generally speaking, recycled the loans, put them into new securitizations, and it was very helpful economics for us. So I think there’s ancillary benefit to resecuritizations that you don’t realize at the time when you do it, but it can pay dividends in the future.
Eric Hagen: Great stuff, guys. Thank you so much for the thorough response, as always.
Operator: Thank you. That was our final question for today. We thank you for participating in the Ellington Financial’s first quarter 2024 earnings conference call. You may disconnect your line at this time, and have a wonderful day.
