Eric Hagen: Got it. Okay. So into October, there hasn’t been a lot of slippage. It sounds like…
Dan Perotti: October has been pretty contained as well.
Operator: Your next question comes from the line of Kyle Joseph of Jefferies. Your line is open.
Kyle Joseph: Hey, good afternoon, a lot of my questions have been answered, but I just wanted to walk through the second lien product, and I know you emphasize it’s really been kitchground and whatnot. But just walk us through the kind of the impacts on the P&L and the balance sheet, specifically and what — in terms of volumes and margins and whatnot and whether you expect that to continue?
Dan Perotti: So the second lien product, overall, as David mentioned, we originated about $200 million of it during the quarter. I think we mentioned in our we mentioned in the presentation that we are also looking at opening that up to beyond our just originating for our servicing portfolio to market to the market at large, which is obviously an even greater opportunity than what we have in our servicing portfolio. So we could — we do expect to continue to increase. It’s been increasing over the past few quarters. If you look at the margin trends that we’ve seen in consumer direct, which is the channel in which we’re originating these loans, that’s been increasing pretty meaningfully on a basis points basis over the past few quarters.
So a lot of that is due to the blend of the second lien product, versus the first lien because we are originating a greater proportion of second liens. And so given the smaller balance of the second lien product, we have a higher basis point target in terms of our gross margin there. So just given the blend, it’s a bit above what the blend was here, so up into the 500 or 600 basis points in terms of margin on a UPB basis, where the overall UPB of these loans can be $75 million to potentially $100,000. And so that’s really the revenue side on the production side. They — it’s pretty similar expense-wise to what we see for a normal consumer direct loan. So, on a normal scale, a little bit under in terms of basis points, what you would see in terms of what we collect in terms of the revenue.
So we have — there’s a profitable contribution to the overall production business, but not as significantly profitable as if we were refinancing loans in a rally. But to David’s point, if we do see an interest rate rally, one of the benefits of the second lien product of production is that we’re able to keep the the staff on hand in a profitable enterprise. And then when we do see the interest rate rally, we’ll be able to shift those resources over to refinancing loans into first liens from the higher rate balances that we’ve added over the past couple of quarters through corresponding.
Operator: Your next question comes from the line of Jay McCanless of Wedbush. Your line is open.
Jay McCanless: Hey, good afternoon, everyone. Two questions for me. I guess if you take the second lien loans that you’re originating outside of your channel. I mean, what’s kind of the annual market size or market opportunity you think could be out there?
Dan Perotti: As, look, I think that clearly — and we’ve got a — if you go to Slide 8, you can see the opportunity for second lien expansion. I think that I would be disappointed if we didn’t see production volumes grow in the second lien space. We did $200 million last quarter. We have a very big servicing portfolio with a lot of taxable equity on its own. We have 60% of the borrowers in the United States have a mortgage loan with a no rate of 4% or lower. And I think that one of the things in my years of experience is products, as people get — as people understand products more get more generally accepted in the marketplace, you just see demand for them go up. and you’re seeing more and more people taking out second liens.
And this is one of the reasons why we are introducing it in our consumer direct channel for non-portfolio customers. We are going to test it out in broker direct. And I would expect that to be sometime late Q4, early Q1. But I think suffice it to say, the product that’s here to stay, given the fact that we do have so many mortgage loans below 4%, and people have a lot of equity in their properties. And so it’s something that they’re going to want to — life events are going to take place that they’re going to want to tap the equity I think as we stay higher for longer, obviously, you’ll see more and more second liens being done. But I think that — I think it’s just — it’s a product that’s necessary really given what’s taken place the last three or four years where people just refinanced into low-rate mortgages.
Jay McCanless: Thank you for the detail. That’s great. I guess the other question, share repurchase, any thought to doing that at these levels?
Dan Perotti: Share repurchase, that’s obviously something that we’ve slowed down on from the levels that we have been at previously with that, that we haven’t done any share repurchases this quarter, something that we continue to look at, but a couple of factors that we take into account One is our overall leverage ratio. So we are targeting to be — if we look at our non-funding debt, we’re at 1.2x leverage ratio this quarter. We’ve been in this area slightly above 1x. And we’re very cognizant that we want to maintain that leverage ratio below 1.5x as we look out into the next few periods and ensure that our leverage ratio is in a good position to be able to facilitate any unsecured debt that opportunities that we might see or might want to engage in.
So while certainly, where the stock price has been recently, I’d say, a more attractive proposition. It’s something that we’re weighing against maintaining our leverage ratio in the area that it currently is as well as other potential capital deployment, whether it’s in the $25 billion of correspondent servicing that we’re adding a quarter or any other potential opportunities that might arise.
Operator: Your next question comes from the line of Priya Rangarajan of RBC Capital Markets. Your line is open.
Priya Rangarajan: Hey guys, thank you so much for the call. On the second lien program that you have, are you seeing any consumer behavior difference between a cash of 35 versus the second lien product? Are they like going on for the other like do they have a presence in terms of which product they to?
Dan Perotti: Well, one of the reasons — free it’s David. One of the reasons we came out with the product is I didn’t like what I was seeing in the market, the people who are starting to refi out of low rate first links. And so from my perspective, we needed the product to give followers the ability to tap their equity without getting out of first lien mortgages. From — when the borrower calls in for cash out refinance, we expose them and offer them the second lien product as a viable product. We don’t — we pay the loan officer the same amount. So there’s no incentive for them to do a cash out refi versus a second lien mortgage. We want to really be focused on the compliance aspect of this product. And I think it’s meaningful in terms of — and I think it speaks to why we’re doing some in the second lien versus cash refinances.