We did just make our second down payment on CECL phase-in with two left to go, and we don’t talk a lot about the medium term, but we have indicated in the past that as we fully phase-in the CECL charge on equity, we will get to a point where we can generate capital to return to shareholders without a significant loan sale. And I think that’s very important to keep in mind because that means we can start to grow our balance sheet, grow our earnings and return capital to shareholders without a major charge on our balance sheet. And obviously, it’s probably always worth reminding people that in the loan sale process, not only do we earn the premium, but we release a big hefty CECL loan loss reserve and then a nice chunk of capital that’s applied to the balance sheet to return to shareholders.
Jon, anything you would like to add to that?
Jonathan Witter: I think you covered it well, Steve.
John Hecht: Very helpful. Thanks guys.
Steve McGarry: You’re welcome.
Operator: Thank you. Our next question comes from Jeff Adelson with Morgan Stanley. Your line is open.
Jeffrey Adelson: Hi. Thanks for taking my questions. Jon, I appreciate all the color you’ve given so far on the actions you’re taking to remediate some of the issues you’re seeing. But that’s my question, it sounds like that’s more on the P&I side, on the repay side. I guess I’m wondering, is there anything you’re also doing on the front end of the book as you underwrite? I know that takes a little bit longer to play out in terms of impact to credit down the line. But just wondering if there’s anything you’re taking away from your new modeling and analytics to apply it to your underwriting today?
Jonathan Witter: Yes, Jeff, great question. And you can imagine that’s getting a lot of our thought and it goes through effectively the same process that I just described a few minutes ago. So every year, and we’ll do this again as we sort of head into peak season, we will go back, we will look at all of the losses by all these layered risk segments that I’ve talked about. And we will look at the returns, we will look at sort of the pricing, and we will look at sort of the ROEs that result from that. I think at this point, I am sure there will be some adjustments on the margin. Any time you have greater insight about sort of potential losses, you have to incorporate that into that process. I don’t think we have reason to believe at this point that that will be a major redefinition.
And of course, remember, we’re underwriting today for loans that will come into P&I a year, two, three, four years from now. And so we also want to make sure that what we’re picking up on is a true lifetime loss change versus just a blip because of environmental factors. So we will think through all of that as a part of this. So yes, we absolutely think through that, by the way, not just during times like this where we see a little more strain, we do that during the good times too where we see less strain, and we feel like we’re always trying to optimize those underwriting conditions.
Jeffrey Adelson: Got it. And then just to maybe follow-up on the other questions with the loan sales this year. Can you may be shed some light on what your potential buyers are thinking about as they see these losses start to tick up a little bit? I know you mentioned you don’t think that this is changing your lifetime loan assumption, but are the buyers willing to maybe accept a little bit of that because of the higher interest rate they’re getting today? Or maybe what’s the thought process you’re handing from them?
