PennyMac Financial Services, Inc. (NYSE:PFSI) Q1 2024 Earnings Call Transcript

PennyMac Financial Services, Inc. (NYSE:PFSI) Q1 2024 Earnings Call Transcript April 24, 2024

PennyMac Financial Services, Inc. beats earnings expectations. Reported EPS is $2.48, expectations were $2.34. PFSI isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to PennyMac Financial Services Inc.’s First Quarter 2024 Earnings Call. Additional earnings materials, including presentation slides that will be referred to in this call, are available on the PennyMac Financial website at pfsi.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company’s actual results to differ materially, as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials. Now, I’d like to introduce David Spector, PennyMac Financial’s Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Financial’s Chief Financial Officer. Please go ahead.

David Spector: Thank you, operator. Good afternoon and thank you to everyone for participating in our first quarter earnings call. PFSI reported net income of $39 million and an annualized return on equity of 4% in the first quarter. These results include $125 million of fair value declines on mortgage servicing rights net of hedges and $2 million of a non-recurring legal accrual. Excluding the impact of these items, our results were very strong. PFSI’s annualized operating ROE was 15% as we continue to demonstrate the resilience and strength of our balanced business model. Our Production segment remained profitable, contributing $36 million to pre-tax income driven by higher volumes in the direct lending channels. And our large and growing servicing portfolio continues to anchor our financial performance with pre-tax income of $125 million excluding market-driven value impacts and non-recurring items.

Total loan acquisitions and originations in the first quarter were $22 billion in unpaid principal balance, driving continued growth in our servicing portfolio to nearly $620 billion with 2.5 million customers. Turning to the origination market, current third-party estimates for total originations in 2024 averaged $1.8 trillion, reflecting growth from an estimate of $1.5 trillion in 2023. However, we believe these estimates to be optimistic and dependent upon multiple interest rate cuts from the Federal Reserve in the second half of the year. With current expectations for market interest rates, to remain higher for longer and mortgage rates back up into the 7% range, we expect these third-party estimates will decline further, from their current levels.

Though the origination market remains constrained currently, we believe it is beginning to reset. In the last two years, we estimate approximately $3 trillion of mortgages were originated with a note rate of 5% or higher. In a higher for longer environment, this group of borrowers is expected to continue growing, supported by a purchase market with strong pent-up demand from key home-buying demographics. It is our expectation that when interest rates do decline, many of these borrowers will undoubtedly look to lower their mortgage rates, driving refinance volumes higher and total originations up to more normalized levels. As I will discuss, we are very well positioned, to capitalize on increased volumes of refinance loans when rates do decline.

However, in the current market environment, we remain focused on adding new originations to our growing servicing portfolio, and we are also actively exploring a continuum of potential opportunities, related to our proprietary servicing system. These opportunities will allow us to leverage what we have built to unlock additional value, for – our many stakeholders. SSE is a proven servicing system, and has helped to drive excellent customer service for our large and growing base of borrowers. Since its launch in 2019, our servicing costs per loan are down more than 30%, and the results of multiple industry surveys have confirmed our position as one of the lowest-cost servicers in the industry, due in large part to our utilization of SSE. Not only does our servicing system provide our associates with a friendly and intuitive user interface, but its increased flexibility versus other systems was highlighted during the pandemic, when we were able to seamlessly implement system changes to quickly accommodate regulatory changes, which allowed many of our borrowers to enter and exit forbearance programs via self-service and automated channels.

One opportunity we are looking at includes expanding our subservicing business beyond PMT, potentially beginning with some of the larger correspondent sellers, we already work with who maintain smaller servicing portfolios. Additionally, we have been approached by numerous innovative technologists in the industry, looking to partner with us, leveraging SSE alongside other mortgage technology, to create a comprehensive marketplace of next-generation mortgage banking technology. While a meaningful upfront investment and a longer timeline would be required, we could also look to potentially commercialize SSE into a multi-tenant, industry-leading servicing software platform, licensing our technology to other servicers in the industry. We believe SSE’s competitive advantages versus other servicing systems in the marketplace are meaningful, and we are encouraged by the opportunities that we have explored thus far.

However, we will be thoughtful in further monetizing SSE, and we remain committed to doing the right thing for our customers and other stakeholders. As I mentioned earlier, our first quarter annualized operating ROE was 15%, a significant increase from the first quarter of last year, and highlighting our ability to generate strong results in what we expect is one of the smallest quarterly origination markets in this interest rate cycle. As we look to build on these results in 2024, servicing income is expected to continue driving the majority of our operating earnings, particularly in a scenario where interest rates remain elevated. The majority of our servicing portfolio continues to be comprised of borrowers that have locked in very low interest rates, which we expect to provide a base level of earnings that persist, for an extended period of time supporting our continued profitability.

Additionally, delinquencies remain low due to the overall strength of the consumer, as well as the substantial accumulation of home equity in recent years, due to continued home price depreciation. Our multifaceted approach to mortgage production and position as one of the largest producers in the country provides us with unique access to originate and acquire newly originated mortgages in the current market. In recent periods, we have added a meaningful volume of mortgages with no rates of 5%, or higher to our portfolio, and we expect this population of borrowers, to provide strong leads for our consumer direct division when rates do decline. As rates remain higher for longer, this population of borrowers is expected to grow, driving an even larger opportunity in the future.

As of March 31, roughly 25% or more than $150 billion in UPB of mortgage loans in our servicing portfolio were at these higher rates, driving our expectations for additional upside potential in our Production segment, when the origination market improves. I will now turn it over to Dan, who will review the drivers of PFSI’s first quarter financial performance.

Dan Perotti: Thank you, David. PFSI reported net income of $39 million in the first quarter, or $0.74 in earnings per share, for an annualized ROE of 4%. As David mentioned, these results included $125 million of net fair value declines on MSRs and hedges, and $2 million of accrued interest related to the final Black Knight arbitration result. The impact of these items on diluted earnings per share, was negative $1.74. PFSI’s Board of Directors also declared a first quarter cash dividend of $0.20 per share. Book value per share was $70.13, down slightly from the prior quarter end, primarily due to the annual issuance of additional common stock, related to our equity compensation awards program, which more than offset growth in retained earnings.

Turning to our Production segment, pre-tax income was $36 million, down slightly from $39 million in the prior quarter. Total acquisition and origination volumes were $22 billion in unpaid principal balance, down 19% from the prior quarter. $20 billion was for PFSI’s own account, and $2 billion was fee-based fulfillment activity for PMT. PennyMac maintained its dominant position in correspondent lending in the first quarter, with total acquisitions of $18 billion, down from $24 billion in the fourth quarter of 2023. The decline from the prior quarter was driven, by our focus on profitability overall. Our correspondent margin in the first quarter was 35 basis points, up slightly from 34 basis points in the prior quarter. Acquisitions in April are expected to total approximately $7.5 billion, and locks are expected to total $8.1 billion.

In broker direct, we continue to see strong trends, and continued growth in market share, as we position PennyMac as a strong alternative to channel leaders. Despite a smaller overall market, locks in the channel were up 20% from last quarter, and fundings were essentially unchanged. We reported broker channel margins of 103 basis points, up from 79 basis points last quarter, which included the impact of higher levels of fallout during that quarter. The number of brokers approved to do business with us at quarter end was over 4,000, up 36% from the same time last year, and we expect this number to continue growing as top brokers increasingly look for a strong second option. In Consumer Direct, lock volume was up 35% from the prior quarter, and originations were up 62%.

Higher volumes in the channel were driven primarily, by an increase in streamlined refinances of government loans, as mortgage rates declined from their recent highs, providing us with an opportunity to lower mortgage payments for borrowers, who previously locked in higher rates. Production expenses and net of loan origination expense, were 7% higher than the prior quarter, primarily due to increased volumes in the direct lending channels. Turning to Servicing, the Servicing segment recorded pre-tax income of $5 million. Excluding valuation-related changes and non-recurring items, pre-tax income was $125 million, or 8.1 basis points of average servicing portfolio UPB. Loan servicing fees were up from the prior quarter, primarily due to growth in PFSI’s own portfolio, as PFSI has been acquiring a larger portion of the conventional correspondent production, from PMT in recent periods.

Operating expenses increased slightly. Earnings on custodial balances and deposits and other income decreased slightly, due to smaller average balances during the quarter, as a result of seasonal tax payments at the end of 2023. However, custodial funds managed for PFSI’s own portfolio totaled $5.4 billion at March 31, up from $3.7 billion at year-end. Realization of MSR cash flows increased $34 million from the prior quarter, due to lower average yields during the quarter. EBO income was down slightly, and we expect its contribution to remain low for the next few quarters. The fair value of PFSI’s MSR, increased by $170 million, driven by higher mortgage rates at the end of the quarter, which drove expectations for lower prepayment activity and higher earnings on custodial balances in the future.

Hedging losses were $295 million. Our hedges were positioned with increased net exposure to interest rate volatility, during the quarter to limit elevated hedge costs. The Investment Management segment contributed $3 million to pre-tax income during the quarter, and assets under management were unchanged from the end of the prior quarter. Provision for income tax expense was $4.6 million, resulting in an effective tax rate of 10.4%, due to the vesting of certain stock-based compensation awards, which positively impacted PFSI’s tax liability. Finally, on capital, in February we issued a new five-year $425 million term note secured by Ginnie Mae MSRs and servicing advances, and subsequently retired $425 million of secured term notes due to mature in August of 2025.

We’ll now open it up for questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] The first question is from Bose George with KBW. Your line is now open.

Bose George: Hi, everyone. Good afternoon. I wanted to ask first just about the hedging this quarter. I guess, could you just kind of walk through a little bit about what drove some of the hedge ineffectiveness this quarter?

Dan Perotti: Yes. Hi, Bose. Thanks. This is Dan. So, as I mentioned in the remarks, during the quarter, we were positioned with an increased exposure to really interest rate volatility overall, meaning that if interest rates were a bit more volatile, then that would lead to greater loss exposure in the MSR. Either way, the reason that we, whichever direction the rates moved, the reason that we were positioned that way was. As I had mentioned, due to the elevated cost of hedging during the quarter, given the inverted shape – and the significantly inverted shape of the yield curve during most of the first quarter and at the onset of the quarter, as well as the elevated levels of implied volatility and options. We were seeing a pretty significant potential cost for maintaining our typical hedge position.

And so, needed to identify if we wanted to take, sort of accept those hedge costs, which would be insured – money that would be insured to be lost on the hedge, or open up certain exposures. And so, we elected to open up certain exposures. As you know, interest rates were significantly volatile in the first quarter, and that led to the hedging loss that you see. As we’re moving into the second quarter, we’ve repositioned our hedge. We have really two factors that have changed. One is that hedge – the shape of the yield curve has changed. Overall levels of volatility have also changed, implied volatility in the options market. And so, that has improved the cost outlook of hedging. And we’ve also repositioned our hedge, to what I would call sort of a more traditional profile, where we would expect gains in a sell-off and losses in a rally.

And so, we don’t expect, as we go forward, the same type of – recurrence of the same type of result.

Bose George: So, okay. That’s helpful. Thank you. And then I wanted to ask, the VA announced that the VASP program, where they purchase loans that would otherwise go into foreclosure, do you think this could remove a lot of the tail risk from VA servicing. And then in turn, improve valuations, especially for the VA exposure that you guys have in the MSRs?

David Spector: Yes. So, look, I think that, as it pertains to the program, I think it’s a really good program for existing customers that are delinquent, because it removes the tail risk of taking those loans down to foreclosure and stop advances. And so, it’s a value to us. It’s a little bit concerning, because there is some moral hazard around the program that I’m concerned would lead to some level of strategic defaults. And I continue to hope the VA will recognize this and put some controls in place around it. I think there’s also a phenomenon in the marketplace, because interest rates have increased meaningfully so quickly, there’s kind of a tale of two cities as it pertains to VA loans, where many of the borrowers already have really low rates.

And I don’t see, them really engaging strategic defaults, or really being in this position. And it’s the ones with the higher rates that, I’m really concerned about. But suffice it to say, I think the devil is going to be in the details as the VA discloses more. Dan can go over kind of where the portfolio sits today, because we’ve done a lot of great work on that.

Dan Perotti: Sure. As we look at our servicing portfolio today and what loans might be eligible, for VASP under the guidelines that we’ve seen. We think it’s about 4,700 loans or $1.2 billion of UPB of outstanding VA loans that would be in that deep delinquency position, where they don’t have an alternative elsewhere in the VA waterfall that would help serve their loss mitigation needs. And so, overall versus our total portfolio, a small portion today in terms of the go forward implications for VA servicing and the valuation of VA servicing. As I mentioned, it could be somewhat beneficial in terms of our current portfolio, looking at the delinquencies certainly helps remove some of the delinquency risk and downside around VA loans in more extreme cases.

But as David mentioned, where we have potential concern today is around the moral hazard, and how that could eventually play out. And if we and others would sort of, get comfortable with that. So I think it’s a little bit early to say whether it would have a net benefit, or negative impact in terms of the servicing value.

Bose George: Okay. Great. Thanks for that.

Operator: Your next question comes from the line of Doug Harter with UBS. Your line is now open.

Doug Harter: Thanks. Can you talk about the market for originating second liens, how that was in the quarter, and how you would view Freddie Mac’s new announcement?

David Spector: Yes. Hi, Doug. How are you today? Look, I think that we are very supportive of the GSEs getting into second lien originations. They, by the sheer fact they offer cash out refinances, they kind of already are in that market. And I think that, where we see issues in the marketplaces, we see cash out refinances being done on low rate mortgages, which I think is not a great place for anyone to be in. And that’s why we came out with the second lien program. I think that with Freddie’s announcement, I would just expect that Fannie will follow suit on their portfolio. I think it’s an important tool for borrowers, who need or want to tap their equity. It creates some standardization in the industry. And I think it’s something that will be – or could be very meaningful.

From our perspective, we’re originating north of $100 million a month of closed end seconds. It’s a product that’s a key component of our product offerings to our customers. But I’m really excited about it. And I know that there’s some issues around, concerns around private capital getting crowded out. But I think – the fact that people are, you have some borrowers who are taking cash out refinances, and paying off low rate mortgages is a very important issue that is going to get addressed, by the offering of the second liens.

Doug Harter: Great. Thank you.

Operator: Your next question comes from Crispin Love with Piper Sandler. Your line is now open.

Crispin Love: Thanks. I appreciate you taking my questions. Just based on some of your comments, it seems that servicing will be the key driver of operating results, just given the current rate environment, rate cuts being pushed out. Given this – do you have a target in mind on servicing portfolio growth as you move through 2024? And also just what’s your appetite for acquiring MSRs?

David Spector: Well, we have built a really great model in terms of growing the servicing portfolio as a byproduct of our organic growth strategy. And as we continue to lead in the correspondent space, and continue to grow our presence in the broker direct space, I expect that our servicing will continue to grow, at probably even a little faster clip. I don’t, we don’t have – servicing size goals in the company. We could go out and buy a big blob of servicing and get really big, really fast. What I’m really focused on is the organic growth of the portfolio. And I think that we’ve done a great job in the 17 years that we built this company, to build this balanced business model with a flywheel that, when rates do decline, we can offer refinances to our borrowers, and we have a strong consumer direct channel to meet that challenge.

And so, I would expect the port to continue to grow. And I think that as we see that growth takes place, we’re going to continue to be on the right side of that growth such that I’m not, I don’t see a melting ice cube scenario anytime in the future.

Dan Perotti: Yes. Just to give a little bit more definition to that, if you look at what our pace of origination/acquisition through our – direct lending and correspondent channels. We’ve typically been adding $20 billion to $25 billion of servicing overall to the platform per quarter. We have some runoff against that. I think we’re around $10 billion this quarter so that, you can sort of do the math there overall. Adding $10 billion to $15 billion a quarter is, around the pace that we’d expect to see most likely through the rest of the year. And we do, we do look at servicing portfolios in terms of the acquisitions. We do review the portfolios that come out onto the market. But as David mentioned, we are focused on adding to PFSI’s portfolio generally at higher note rates.

There are a few more of those types of portfolios that, have come out recently, but there are also still a preponderance of lower note rate mortgage servicing portfolios, which, may be attractive as a PMT, more as a PMT investment, but less so for PFSI. And although we look at those portfolios, generally speaking, the return, we’ve not seen any that sort of meet our return hurdle, as well as the portfolio characteristics that we would want to add to our portfolio. We have significant control over the characteristics of the loans that we add to our portfolio through our – production channels. And specifically in correspondent able to shape the type of loans, or the characteristics of the loans that we’re bringing on to be able to limit the downside.

And you have less control of that, if you’re buying sort of blocks of servicing, bulk servicing.

Crispin Love: Great. Thank you. I appreciate that. And just one last one from me, again on sale margins increase in the quarter, looks to be mostly driven by broker direct. Can you just discuss some of the dynamics there, and what drove the margins higher? And then just competition in broker direct broadly with you, being a top three player in the channel?

David Spector: Look, I think that, the broker direct story in Q1, is really something everyone in the organization is incredibly proud of. We’re continuing to gain share of broker direct. And I think it’s really a byproduct in that, top brokers see PennyMac as a strong alternative to the top two participants. We’ve got great tech supporting our brokers and brokers need a strong second option. I would say, as it pertains to gain on sale margins, look there was a period of time, a year or two back when there was irrational pricing taking place in this part of the market. And I think, we’ve seen a kind of a return to more rational pricing. And it’s, margins are continue to remain, good. And I think that it’s something that, I foresee continuing in Q2, and beyond.

But it’s just, there’s just a lot of good things coming out of broker direct, just from broker feedback and we’re seeing increased amount of jumbo activity at a broker direct. And it’s a very meaningful shift quarter-over-quarter.

Dan Perotti: The one other note that I’d have on the broker margins too, is that if you look back to the fourth quarter, the broker margins were impacted by some fallout in excess of our model that we experienced in the fourth quarter as we had that sharp interest rate rally. And that did not recur in the first quarter. And so, we view the first quarter as a bit more normalized for the current environment and in line with our expectations, barring some significant change as we’re going forward in terms of the broker margins specifically.

Crispin Love: Okay. Yes. Thanks for all that. Thank you for taking my questions.

Operator: The next question comes from the line of Kyle Joseph with Jefferies. Please ask your question.

Kyle Joseph: Hi. Good afternoon. Thanks for taking my questions. A lot of them have been asked. I just wanted to hone in on Slide 6, regarding technology and post-unlock. You laid out four strategies. Is it going to be a four-pronged approach? Do you anticipate, focusing on one of these more than the others, and give us a sense for the timeframe for the layout of this?

David Spector: Yes. Look, I think it’s not a linear approach we’re taking. We’re exploring all options, as it pertains to SSE. And I’m really encouraged with the opportunities that they’ve presented themselves. I mean, clearly we have the most advanced system in the marketplace. And as you can see – on earlier slides that, just what we’ve done to, or later slides, what we’ve done to drive down servicing costs is really remarkable. And that’s a testament to the system that we have. We continue to identify efficiencies. And I look at, you know, the opportunities and they’re plentiful. I think first and foremost, we need to focus on continuing to drive down the costs. And we need to continue to optimize our investment in servicing.

Furthermore, I think Dan, with that, we have a competitive advantage and they’ll allow us to, increase our production capabilities in the organization. And that will be vitally important. But I think as it pertains to SSE, the next logical step is subservicing. And we need to expand beyond PMT. And there’s some real opportunities there in soliciting correspondent sellers who maintain smaller servicing portfolios. I think that there are banks and other large servicers, who perhaps want to get out of servicing, but clearly our success on SSE, compared to other offerings in the marketplace is being noticed. And I think that that’s a very, I think that’s a great selling point for us. We’re also, having good conversations with technologists and other innovative parties in the industry, interesting in building on our technology, and working with us to get the technology out into the marketplace.

And I think that’s, the next final step, which is probably the option that’s furthest away, just commercialization of the technology. And that would require some investment to allow for multi-tenancy on the platform. But I think that, as I said, we – there’s a lot of talk about AI in the marketplace. And I look at what we’ve done on the system and I know many in the industry, I’m hearing want to get to 60%, 70% self-serve using AI. We’re at 95% self-serve on our system. And I think a lot of the AI discussions that are taking place in the marketplace are really yesterday’s automation discussions. And we built this system really to be robust and to really allow borrowers to – really be served. And I think that, we’ve had a lot of great AI development here in the organization.

On the production side, we have, we’ve deployed AI to read documents from clients and brokers, which helps in the classification of documents and extraction of data. On the servicing side, we can route all documents to the area that is affected, or needs to address documents coming in. We have a lot of great voice AI tools that we’re using. The most exciting one is the one that, we can record all customer conversations to drive better business outcomes, but also be able to see all customer complaints, which allows us to reduce the complaints, and continue to reduce costs. And so, I think that, this system is going to continue to outshine, and is one that is going to be really meaningful, first and foremost for us. We also think it’s important for the industry, and I’m excited about seeing others, reap the benefits as well.

Kyle Joseph: Got it. Very helpful. Thanks for answering my questions.

Operator: The next question comes from the line of Terry Ma with Barclays. Please ask your question.

Terry Ma: Hi. Thanks. Good afternoon. So, I think last quarter you guys spoke about a seasonal decline in ROE in the first quarter, but you should expect to continue to kind of build on that throughout this year. And obviously you guys printed 15% operating ROE this quarter. So maybe can you just speak to your confidence level that, you can continue to build on top of that 15% going forward, despite the new, I guess, higher for longer rate outlook?

David Spector: Yes. I think looking at the higher for longer rate outlook, we would expect our ROEs to generally be, our operating ROEs, I should say, to generally be in that sort of mid-teen potentially moving up to high teen ROE level as we move through the year, depending on the size of the overall size of the mortgage market. As David noted in his remarks, despite the fact that we are higher for longer, there are more and more mortgages that exist at these higher rates. And so, any bit of, interest rate volatility leads to greater and greater, refinance opportunities or opportunities for the market, to become that incrementally larger and sort of feed the flywheel in terms of our refinance business and boost our other channels. And so, we do expect a general increase from these levels of ROE, but probably remaining in the mid to high teens for this year.

Terry Ma: Got it. That’s helpful. And then I just wanted to follow-up on the hedging. If I interpreted your comments correctly, you guys were initially positioned for more rate vol in the first quarter. That did not materialize. So therefore there was some hedging inaccuracies that you guys have since adjusted. Is it possible to kind of give a mark-to-market on how those hedges have performed quarter-to-date?

David Spector: So, we don’t typically give the sort of inter quarter, updates and everything changes a little bit on a day-to-day basis, but we are tracking, adjusted for costs, much closer to our 90% to 100% hedge ratio this quarter than, than what we saw last quarter.

Terry Ma: Okay. Great. That’s helpful. Thank you.

Operator: We will take the final question from the line of Eric Hagen from BTIG. Your line is open.

Eric Hagen: Hi. Thanks. How you’re doing? Looking at Ginnie correspondent, I mean, how sustainable do you think those margins are at these rate levels? And how do you weigh the option to either, cut your margin or expand the credit box to win more business when rates are at these levels versus maybe rates being lower? How would you maybe change your risk, or return hurdles if rates are in fact lower?

David Spector: Yes. Look, I think as it pertains, listen, we’re not the organization that’s going to be going down the credit box to get more production. We’re always focused on margins, return and profitability. I will tell you that in the first quarter, we saw – we saw some kind of weird activity. We had a market participant who raised a bunch of capital that was just being overly aggressive. I will tell you that, there’s still share to be gained. We had a good quarter. We had over, we’re going to finish the quarter over 20% market share. We’re still the dominant player on the government correspondent side. I will tell you that I expect margins, to continue to, kind of run where they are today. I don’t, we’re kind of holding steady state here.

And we’re getting, as it pertains to correspondent. We’re getting increased gain on sale activity from good whole-own executions away from the GSEs. And so, I think that that’s important as well. But I don’t, as I think, we’ve gone off to a nice start in April, and I would expect that to continue through the quarter.

Eric Hagen: Yes. Okay. That’s helpful. I’m looking at Slide 23, and looking at the tangible net worth to assets. I mean, is there a target range for your leverage, at these rate levels? I mean, you guys are doing a 15% pre-tax ROE. I mean, how does that compare to your cost of capital and how do you see that maybe changing at, different levels of leverage?

David Spector: So, overall in terms of our total debt to equity, as we’ve been got noted on the, on the page, we typically targeted around 3.5 We’ve been below 3.5 given the lower, the lower rate environment recently. We continue to add to our servicing portfolio, as we move through time and that has, has driven up a bit our non-funding debt to equity ratio, which we target roughly in the – range that we’re in now, between one to 1.5. So, overall, I think we’re in terms of the non-funding debt to equity ratio in the sort of range, we would expect in terms of the total debt to equity ratio, could be higher, but that’s really driven by overall production volumes primarily, which will be a function of the market, more than anything.

And so, we don’t expect to dramatically change our leverage profile in a, or to change our leverage profile in a meaningful way as we’re moving forward. We think we’re managing to a prudent level there and as I have discussed before, we think that in the current environment, that really results in a mid-teen, mid to high-teen operating ROE.

Eric Hagen: Got you. Okay. Thanks a lot. Appreciate it.

Operator: We have no further questions at this time. I will now turn it back to Mr. Spector for the closing remarks.

David Spector: I’d like to thank everyone for joining us on the call today. If you have any questions, please feel free to reach out to our Investor Relations team, and I look forward to speaking to you all myself, over the next coming months. Thanks so much.