Ellington Residential Mortgage REIT (NYSE:EARN) Q2 2023 Earnings Call Transcript

So compare housing now to the peak of 2022, you’ve had a little bit of an annual decline, and you probably had 4% wage gains. So kind of that alone low as DTI. So I think over time, if you see wage gains continue, then things are a little bit more affordable for people. It’s another motivation to move. So I think it’s a function of time, and it’s a function of rate, I don’t think we’re there now. But six months from now, if mortgage rates come down a little bit according to the forward curve, you might start to see a little bit of that more discretionary moving going on.

Eric Hagen: Yes. Really amazing context there. Lots of changes on balance sheets for banks like you guys talked about their capacity for lending and supplying repo financing more specifically to the street. How are you thinking about like to scale for a mortgage REIT and its access to the repo market, which has historically been supported by banks? And do you feel like there’s enough stable financing supported by the kind of non-bank repo lenders out there?

Mark Tecotzky: So I guess for us, and obviously, not the biggest borrowers in the space, right, it’s been stable, but it’s been banks and non-banks. We have not seen banks pulling back at all, right? And so we’ve seen a consistent mix between bank and non-bank and rates have been consistent relative to SOFR. So I think there’s lots of capacity. I don’t think that is the limitation right now for anyone. Definitely not.

Operator: And our next question comes from Matthew Erdner with JonesTrading.

Matthew Erdner: I just got a quick one for you. You mentioned you took TBAs off and then put them back on. Could you just explain your thoughts around that, and how you’re thinking about TBAs going forward?

Mark Tecotzky: I guess, we’ve always had, I think, one thing we’ve done maybe differently than some of the peer group, if we have liked the use of being short TBAs, we’ve liked that positioning of long pools, short TBAs in certain coupons. There are a lot of benefits to that. You sort of control your negative convexity that way. We think sometimes there’s very good relative value doing that, especially in times when mortgage spreads are relatively tight. And so we will use dialing up and dialing down that TBA shorts as an expression of our view on how attractive the mortgage basis is. So despite all the benefits of TBA shorts, I just mentioned, when TBAs get to levels that we think are very wide, and we think they’re much more likely to tighten than widen, then we’ll reduce that exposure and just live with the slightly higher delta hedging costs that come with it.

Operator: And that was our final question for today. We thank you for participating in the Ellington Residential Mortgage REIT second quarter 2023 earnings conference call. You may disconnect your line at this time, and have a wonderful day.