And the other thing that’s happening is demographically, the — I don’t know what’s the generation of millennials, they’ve moved into the house buying market age. So the demographics have changed and that’s a very big positive for SFR because they’re moving — instead of buying a house now if they can’t afford it, they’ll move into a house and rent it. So we’re bullish on the business. We could get into the business here. It is a business of a couple of other firms and they’ve done quite well. And it didn’t focus on small owners. This is such a granular lending business. It’s not something we built but it is something we could do. The returns are pretty good.
Jeffrey DiModica: So regarding our books, Sarah and thanks for the question. We’re going to be patient on selling down that book, as Rina talked about, it’s about $2 billion of non-QM loans, about $1 billion of agency eligible loans. We took a large GAAP write-down about a year ago, over $200 million, I believe, as spreads widened. We don’t tend to hedge. There’s no easy way to hedge spread there. In our CMBS book, we hedge about 35% or 40% of our spreads because we have a CMBX market to do so post GFC, there’s no way to hedge spreads in residential lending. So we do hedge rates. The early move in that book was a massive amount of spread widening. So we — that is why the GAAP write-down came. But fortunately, we moved our hedges up and up and up.
But I think Rina and I mentioned that we have about $170 million of hedge gains. So over the last year, our hedges have outperformed collateral, even though collateral hasn’t tightened significantly. You are seeing some green shoots with new securitizations coming tighter. We do believe after the last Fed move that those will continue to tighten. We continue to finance that book on repo and our repo balances — or excuse me, our repo loans are coming in at a tighter and tighter spread. We’ve opened a couple of new facilities this quarter and expect to open another new one. Next quarter, we’ll be about 25 to 30 basis points lower overall in our cost of funds on that book. So even though they are relatively lower coupons than they are negative carried today against the forward curve and looking at the hedge gains that we have and effectively taking that $170 million, you can go pay down repo at 8%.
So that’s giving us excess income above that’s making those a positive carry trade today. And we own a lot of the residual bonds off our first 15 securitizations in the bottom of those stacks is the lower prepays, we like faster prepays on our below par loans. We’re not getting that. But those slower prepays are accretive to the value of our owned position. So overall, when you include the hedge and include the securities, the book is performing fairly well. You asked about credit. And one of the benefits to our book being about a 4% gross coupon on the loans that have not been securitized yet, those lower coupons are going to have better performance than the higher coupons. Today, the current coupon is 8% or so and those will be the first ones to repay and those will be the first ones to have stress when stress happens but we’re expecting significantly less stress.
We’re not seeing it show up in any meaningful way on these lower coupons. And remember, these loans were written 2, 3, 4 years ago. So that is a lot of HPA built into those housing values. So I don’t expect to see credit distress there. The book doesn’t — the loan book doesn’t carry quite as well as we would hope but it carries positively and it gets bailed out by the hedges and the legacy book that we own as well as we own some legacy securities from pre-GFC that have been in our book to $250 million or so that have performed very well as well. So all in all, that book is not performing quite as well as our other cylinders but it’s a lot better than it was a year ago. We have a long-term strategy. And importantly, we have the liquidity to hold on, not force ourselves to lock in bad financing cost and a securitization today because we have access to so much liquidity here or so.
We continue to monitor it but this will be a long — this will be something we’re going to talk about for a long time. We’re in it for the long run and the book is performing fine.
Operator: Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now hand the conference over to Mr. Barry Sternlicht, Chairman and Chief Executive Officer, for closing comments.
Barry Sternlicht: Thanks for being with us today. And as always, we’re here to answer any questions and thank our Board of Directors and our great team at the start of property cash put us in this position that we are and have a great August, everyone. And we’ll have the whole political year ahead of us to be entertained.
Operator: Thank you. The conference of Starwood Property Trust has now concluded. Thank you for your participation. You may now disconnect your lines.
