So consumer, we have seen it. You haven’t seen it in Fannie Freddie portfolios if you look at sort of credit risk transfer performance. You are seeing it a little bit, and this is just sort of not because it impacts the portfolio, just it is a useful data point, you have seen it a little bit on Ginnie Mae portfolios. It’s a lower — it’s a higher LTV, lower FICO borrower than what you see on Fannie Freddie. Sub-prime auto, you have certainly see it. So it’s happening. I think that the borrowers that you want to lend to primarily are the borrowers that have locked in low debt costs with a 30 year low interest rate mortgage. So if you look at credit risk transfer performance this year, CAS and [Stacker], it’s been phenomenal. Because I think people pick up on the fact, okay, it’s the floating rate product the investors like, because it floats off a SOFR and SOFR has been high relative to other points in the yield curve.
But it’s a floating rate product where ultimate borrower has termed out their debt. And even better than sort of corporate debt or high yield debt, it never rolls, it just amortizes. So those borrowers have sort of had the best and most stable credit performance. And then as you get to sort of, like non-QM is second, but non-QM, you have [Technical Difficulty] delinquencies pick up a little bit and that has nothing to do with servicing transfer, I mentioned in the prepared remarks, but you’ve seen a little bit of an uptick in non-QM. And then when you get to borrowers that are renters that are basically having to deal with rising rents to past year that you have seen a little bit weaker performance.
Larry Penn: And I could just add to that. If you look at, for example, Slide 4, right, and you can see the consumer loan row, $90 million, that includes some ABS, it includes some equity investments. But — so you have gotten basically less than $90 million. I just want to make the point that the remarks that we made were somewhat a little backward looking as opposed to forward-looking in the sense that we have already — if you look at — we are projecting 11.5% yield on that portfolio to where we have marked it. So we have marked it down. And so we think that’s a good yield going forward. And I just — after the mark-to-market price drops that we have put in place, and I also want to point out that most of that portfolio is actually secured consumer not unsecured secured consumer.
So I don’t — it’s a small portfolio, it is under $90 million. We think it is marked right, we think it’s going to yield 11.5% and that’s on a unlevered basis. So we feel good about that portfolio going forward and it’s possible that we add to that portfolio if we get some good situations.
Operator: And we have our next question from Matthew Howlett with B. Riley.
Matthew Howlett: Just at a high-level, when we look at the results by segment, the credit was terrific, it was stable, then you had obviously a negative contribution from Longbridge and it looks like the agency was negative, it had negative contribution. Backing those out in normalized, I mean, those are probably going to be — Longbridge, I think, was contributing $0.10 in the first quarter and then, of course, the agency side, you’re shrinking that, but that will likely be a positive contributor. I mean, when I look at dividend, ADE to dividend coverage, I mean, what sort of — you are probably there ex the sort of one time-ish events. I mean, how do I look at it going forward on a run rate basis?
Larry Penn: I think we’re close, right? So — I mean, one way to approach it is Longbridge was 14% of our allocated equity at quarter end, and they’ve certainly had quarters where they’ve contributed $0.05, $0.10 per share of ADE, if they’re contributing 6 to 7, 14% times $0.45. If you add to that, we picked up about $0.38 from the investment portfolio net of corporate overhead. So the sum of those is pretty close to the dividend. We did include in there prepared remarks, I guess, you could say some caveats on how to model or think about ADE in the near-term, because you have some idiosyncratic behavior on our interest income when loans move into delinquency and we stop accruing interest income or when they reperform and we expect to be paid at par and then interest income kicks in again.
So — but there will be some noise there and we expect that to continue. But, net-net, I think we’re on track run rate wise. Given October was a continuation of some of the challenges as we saw in Q3, namely rates selling off and volatilities continue to be high, we’re not out with October numbers yet, but wouldn’t be surprised to see some of the same challenges in October that we saw in Q3 and origination channels and agencies that might weigh on ADE in Q4. But all that said, on a normalized basis, I think we should be tracking, if not in Q4 then as we get into next year. And then you add in the contribution from Arlington, including deploying additional dry powder, which would be accretive. So I know there are a lot of pieces there that I threw up, but hopefully that…
Matthew Howlett: No, I’m glad you clarified. I’m thinking about it the same way you are. I’m looking at the book value stability to me what really mattered in the quarter. When we think about Longbridge, I mean, when we think about modeling, I mean, it’s the highest, clearly, one of the highest gain on sale margin channels. When we think about what could impact margins and volumes? Is it very much like — I mean, when we think about it, is it like the conforming conventional side, when we think about spreads, are they track agency spreads, the HECM spreads? I mean, just walk me through — is it all about [HPA] or is it about lower rates, sort of what could influence positively or negatively Longbridge when we get into next year and some of the volatility comes down?
