I — there are life events air cash out refinances or refinance to take place. But I generally am of the view that if borrowers want to tap their equity, the second lien product is the place for them to go. Now we do have minimum FICOs on the product. So the lower FICO product, if you see cash out refinances in the marketplace, that’s probably the reason why — but generally speaking, given the high credit quality of our servicing portfolio, second lien is the product that I really want to see our borrowers using to tap the equity.
Priya Rangarajan: That’s very helpful color. Secondly, on the origination side. As you look into 2024 to the extent that the markets don’t change so much from an existing sales house market. How are you thinking about gain on sale margins? Do you think that the industry has rationalized enough that you should see stable margins? Or can gain on sale actually go higher as there is more consolidation?
Dan Perotti: Well, look, I think I didn’t get on sale margins for this remain relatively stable. There’s some ebbs and flows that take place during or so. But I think generally speaking, we are seeing gain on sale margins stabilize. And as I mentioned earlier, I think in correspondent, we’re starting to see a little bit of opportunity with the banks stepping back for us to increase margin. I think that, look, from a mortgage size perspective, mortgage market size, given where the application index is showing right now, we’re probably running at $1.2 billion, $1.3 trillion run rate. Given the average balance, we’re a unit run rate that we haven’t seen since 1990 I generally think we will see rates come down when I don’t — I’m not — I’m not in the prediction business.
But I think when you look at the market as a whole, it’s generally so in the second half of next year, you’ll start to see some pressure come off of rates. Having said that, as I said, I’m generally, I’m very pleased with where margins are, there’s rational pricing taking place in all three channels. And I suspect that in Q4 and a little bit in Q1, given the high level of rates, you’re going to start to see some more consolidation taking place, which will only lend itself to margins at a minimum, staying stable.
Priya Rangarajan: Got it. And then finally, from a credit perspective, you guys obviously did not do a dividend this quarter. Given where your debt trades have you guys thought about doing open market purchases, tender like your CN25 financing? Anything would be really helpful color. Thank you so much.
Dan Perotti: Sorry. The — so we did do a dividend this quarter, just to be clear, in case I misheard you. So we did issue quarterly dividend. But not currently — as I mentioned, we are looking at potential opportunities in the unsecured debt space or in the high-yield space, have not seized upon that yet. We’ve additionally been raising — we’ve increased some of our — we’re in the process of looking at potential opportunities on the secured side to place or move out some of our debt maturities there. The — unless we — or to the extent that we see an opportunity that makes sense for us in the high-yield market, we potentially would look at if there’s how to address our maturity for unsecured debt that’s coming up, not till later in 2025, but that still is it off. And we think that there’s a pretty large window of opportunity here between here and when that maturity comes. And so we’re not — we don’t necessarily expect anything in the near term.
Operator: And your last question comes from the line of Kevin Barker of Piper Sandler. Your line is open.
Kevin Barker: Thank you. I just wanted to follow up on the interest income, which has been fairly strong. Obviously, you have some different moving parts with higher interest rates, higher custodial balances and then some seasonality associated with it, combined with some decline in debt. So maybe could you just provide us a little bit more color on what you expect from the direction of interest income, just given higher custodial balances? And then interest expense on the other side, given lower origination volume just seasonally. Thanks.
Dan Perotti: Overall, when we look at the interest income to your point, there’s a number of different moving pieces. So we tend to look at it on the interest income related to production and then the interest income related to servicing. Interest income related to production, given some of the changes in the yield curve toward the end of last quarter, at the beginning of this quarter, would tend to push up the note rate of mortgage rates versus the short-term rates have stayed relatively stable. So we’d expect that relationship between our financing lines and the note rate on the loans that are coming in to increase that interest spread so that would generally move the interest income on the production side in a positive direction.
— on the servicing side, a couple of factors. So one, as we noted in our servicing income sort of disclosure, our servicing profitability slide, Slide 14, this — in the slide deck. We did see interest expense decline quarter-over-quarter due to a lower draw on our servicing financing lines. We are keeping somewhat less cash. You may have seen the cash balance in the cash balance on our balance sheet declined somewhat. So we have begun to reduce the overall cash that we’re holding on the balance sheet. We had been holding somewhat elevated levels due to the — some of the markets or well that we saw earlier in the year. So we’ve begun to reduce that, that really reduces some of the interest expense that we’re seeing on the financing lines would also reduce somewhat the interest income that we’re earning on that cash.
But overall, since we’re paying a spread of 300 to 400 basis points on the servicing lines would bring down that interest expense and create an overall positive benefit. On the interest on the custodials, we do expect that to probably come down a little bit quarter-over-quarter just as to your point, the overall custodial balances or the escrow account balances tend to come down in the fourth quarter and be a little bit lower in the fourth quarter and first quarter due to seasonal tax payments that typically occur toward the end of the year or very beginning of the year. So hopefully, I know that was a lot of different components, but a couple of different countervailing effects. But overall, I would say, probably interest income ends up in a pretty similar place with all those effects is what we saw in this quarter if we’re looking out into the next quarter.
Kevin Barker: Yes, that’s very helpful. Just from a seasonality perspective, what percent of the cost dial the balance would you expect a decline in the fourth quarter and then in the first quarter just due to seasonality?
Dan Perotti: Yes. Typically, the average is lowest in the first quarter because the tax payments happen through the fourth quarter. So I think compared to the third quarter, I don’t know the percentages off the top of my head. But I think roughly in the fourth quarter, down 10% to 15%. And then in the first quarter, a bit higher than that, probably down 20% or a little bit more.
Operator: We have no further questions at this time. I’ll now turn it back to Mr. Spector for closing remarks.
David Spector: Well, thank you, everyone, for joining today. We appreciate the time and the thoughtful questions. And if you have any additional questions, please don’t hesitate to reach out to our IR team, and I look forward to speaking to all of you go soon. Take care.
Operator: This concludes today’s conference call. You may now disconnect.
