Interestingly enough in correspondent, we saw a decrease in the number of sellers. It’s down to $812 million from $830 million. And so we’re seeing a little bit of consolidation taking place. But we — I think that our value proposition is pretty tried and true. We’re in the market every day. We get value for that. I think when others are in and then they’re out and they’re in and then they’re out, that creates some consternation with sellers. And so this is why I continue — we saw some really good margin growth in correspondent. We were at 21 basis points in the fourth quarter of ‘22. We were at 34 basis points in the fourth quarter of ’23. And it’s a combination of increasing pricing power, but also we’re able to find executions away from the GSEs that provided some additional margin.
But I think that — I like the correspondent is so core to our franchise and it’s something that I continue to expect it to be. But yes, I mean people raise more capital to get more aggressive. And on the margin, you may have someone sell loans to them because they have a little better bid. But we’re the industry leader for a reason and will continue to be there.
Michael Kaye : Okay. Thank You.
Operator: Our next question comes from the line of Eric Hagen with BTIG.
Eric Hagen: I hope you guys are well. Yes, I thought the hedging results were good, but what do you feel like maybe prevented you from hedging even more of the fair value mark during the quarter? Is there a sense maybe for how much sensitivity you feel like there is to, call it, the next 50 basis points lower in mortgage rates with respect to the fair value mark?
David Spector: Sure. So we’re pretty pleased with our hedging performance in the fourth quarter. As you know, interest rates were all over the map in the fourth quarter. We were up — the 10-year was up as high or a little bit over 5% and down below 4%. So really a pretty significant pretty significant swing in terms of the direction, the direction that or that interest rates and mortgage rates went through the quarter. We were able to cover 80% of the move and that included the costs that we have to hedge, which ate up a little bit as well. We have been in this in this environment, targeting a tighter hedge ratio than we have historically. But overall, given, like you said, the volatility of interest rates, we’re pretty pleased with the performance.
To your point, as we move — as interest rates or if interest rates move down further, we have — the asset has increasing sensitivity. Part of that is also because we’ve been adding a fair amount of loans at those higher interest rates that’s been part of our strategy so that those loans that we have a greater portfolio of loans that could move into refinanceable territory if and when interest rates do decline. And so the sensitivity of the servicing asset has increased a bit as we’ve moved lower in interest rates and we continue to hedge that. But what we’ve also seen consistent with our strategy is an uptick in refinances here in the first quarter. You can see that in terms of some of our January locks in the — in our consumer direct channel.
For example, where up pretty meaningfully from the run rate that we had in Q4. And we’ve just taken another sort of leg lower here in interest rates. So really, again, gets back to the balanced business model and how, to the extent that we see potential slightly faster prepayment speeds on the servicing side with our hedge and with the refinanceability of the port that serves to offset that.
Eric Hagen: Yes. No, that’s helpful. So how are you guys — a separate question here? I mean, how are you guys thinking about the secured financing for MSRs versus maybe replacing some of that balance with unsecured debt? And do you see any risk that banks could pull back from supporting the market for MSR funding? And does that in any way kind of drive your appetite for unsecured?
Dan Perotti: So we’ve — I mean, we’ve talked about it in the past that we really — our strategy generally is to move more toward unsecured financing, our issuance in Q4 $750 million of unsecured debt we used to pay off some of our secured financing or MSR financing, although really are really term notes there as opposed to bilateral from banks. Overall, we expect to continue to move more towards the unsecured financing really the reasons for that other than continuing to sort of bolster our credit position and move sort of a more favorable position with the rating agencies, where that unsecured debt is sort of more stable isn’t subject to margin call — margin calls if we have a significant interest rate rally, for example, so has some benefits on that side.
We think we can drive down the costs over time as we move more towards unsecured since that has a more favorable sort of ratings capital profile of stability. In terms of the — flipping to the other side on the secured, we have not seen a pullback in MSR financing from banks. In fact, it’s really been the opposite. We’ve seen more banks really willing to lend on MSRs and in different MSR structures. So — and we’ve been, over time, adding banks to our MSR facilities, and so we don’t see that as an issue. We want to continue to diversify the number of banks that we have that are financing our MSRs just for risk management purposes. But we don’t see a pullback there and that that’s not really a major driver of our move toward unsecured debt.
It’s really all of the other motivations that I discussed previously.
Operator: Our next question is from the line of Bose George with KBW.
Bose George: Can you give us just your updated thought on share buybacks just given the current valuation?
Dan Perotti: Sure. So in terms of share repurchases, we didn’t have any share repurchases in the fourth quarter. The share price has moved up pretty significantly from a few quarters ago as I’m sure you’re aware. And so any time we’re looking at our capital deployment, we’re looking at what the relative return and relative value is in deploying it in shares versus really back into our business and continuing to acquire MSRs through correspondents and add to the servicing portfolio. And so we really see that as the sort of the optimal path currently. And the other piece that plays into this is our overall management of the leverage ratio of the company. And so continuing to manage our leverage ratio and that a bit above 1 point or 1x in terms of our non-funding debt to equity, is where we’ve been.
We’re looking to manage in that in a similar range there. And so obviously, share repurchases puts a little bit of pressure on that. So those are the factors that we’re balancing. But in the current environment, certainly in the fourth quarter. And given how everything is currently situated, we’d expect to continue with our capital deployment really into — back into the business in MSRs as opposed to share repurchases.
