Bose George: Okay, great, thanks.
Operator: We’ll go next to Jason Weaver with Jones Trading.
Jason Weaver: Hi, good morning. I noted your comments expecting lower supply. Where do you see incremental returns on new MSR today and where the relative value looks like between, say, production coupons and, and season deals?
Nicholas Letica: Yes, good morning. Thanks for the question. We see the value proposition between low coupons and high coupons to be pretty, pretty flat. The range of returns is probably, at an unlevered, unhedged basis in the low-teens, levered and hedged. We think it’s mid-teens probably. One of the things that we’ve observed in the market and there’s been lots of demand in the market. The servicing has been very well bid this quarter, is that the recapture assumptions that are embedded in some of the higher coupons can be pretty high, pretty efficient. And so this is something to keep in mind as, as we look at the relative values between high coupons and low coupons. But, every pool is, is different, every situation is specific and we’re willing and able to participate across the – right across the sector in terms of – in terms of coupons.
As we noted in our prepared remarks, we bought, a small pool post-quarter end. We continue to, to be active in the market and active bidders, and we’re being very disciplined on, on the price that we pay in order so that we can get, get returns that we think are worthwhile in, in the market.
Jason Weaver: Okay, thank you. That’s helpful. And then I’m just curious, outside of the interplay between MSR and Agency RMBS, are you making any additional changes to your hedging approach, given that we’re coming to a consensus view of a higher longer term, higher for longer environment with potential volatility ahead?
William Greenberg: No, no, I don’t think so. We’ve always had an approach or, of keeping our interest rate –our interest rate exposures low generally. And so embedded in that is, the full range of the portfolio and whether the MSR has more or less interest rate risk, which hedges the MBS, that just gets put into the, the mix and the calculations that we do in order to figure out how much other hedges we need in our portfolio. But we’re generally trying to keep our interest rate exposures low. We don’t feel that we have particularly an edge in knowing which direction interest rates are going, so, we, we keep our exposures pretty flat, as you can see from our disclosures, the kinds of sensitivities that we show.
Jason Weaver: All right, thank you. And just one more and I’ll drop back in the queue. Are you seeing any changes in the willingness of counterparties to extend additional MSR financing?
William Greenberg: No, in fact, the opposites. We’re seeing lots of demand for new balances on the MSR side. We’re seeing new participants enter the market regularly. There’s lots of, of, of MSR financing supply out there in the market.
Jason Weaver: All right, thank you again for taking my question.
William Greenberg: Thank you.
Operator: We’ll go next to Rick Shane with JPMorgan.
Rick Shane: Hi, guys, thanks for taking my questions. How are you? Look, most of my questions have been asked and answered. I do have a housekeeping question simply because you guys have tweaked the way you report line items and we need to reconstruct our model a little bit. You historically broke out other interest income from securities income. Can you break that out for us and also what was the converts expense on the quarter?
Mary Riskey: Sure. Good morning, Rick. So, I will just note that the, the details of the interest income and interest expense will be included in our queue, which will be filed today. You can also find the breakdown on Page 21 of the deck on our portfolio yields and financing costs. So, specific to your question, convertible senior notes quarterly expense was $4.6 million and what was your other question?
Rick Shane: What was the other interest income line?
Mary Riskey: Let’s see. I believe it was $17 million. Yes. So, on, on 21 you can see RMBS interest expense of $100.6 million. So the remainder would be other.
Rick Shane: Okay, terrific. Thank you very much. Sorry to do that, but it just saves us a lot of hassle with the model. Thank you.
William Greenberg: Thanks, Rick.
Operator: We’ll go next to Eric Hagen with BTIG.
Eric Hagen: Hi, good morning, guys. Okay, following up on the MSR financing, I mean, do you see that maybe leading to improved economics or terms that you get in the market? And do you think your counterparties are giving you guys credit for having brought in the subservicing function?
William Greenberg: Good morning, Eric. Thanks for the question. In terms of, I think, whether spreads will evolve, the answer, that’s a definite maybe. I don’t know, we haven’t seen that yet. But, these things, typically have a way of doing that when there’s lots of competition and so forth. Tighter spreads is often one, one byproduct of that. One thing to keep in mind, however, though, is that our, our financing facilities generally, these are not overnight repos kind of thing. These are generally longer term facilities. So, it takes a little bit longer for these things to, to reset and so forth. But as these things come up, we do renegotiate rates as, as they occur. And in fact, the last couple of facilities which have recently come up for renewal, we did actually renegotiate to lower rates.
So that is beginning to happen and could it happen more, that remains to be seen. And your other question in terms of whether our lenders are giving us credit for the subservicing operations, I’m not sure what, what you mean by that and how it affects our lending profile or, or, or how lenders view us, but all our lenders are aware that we brought our servicing in house and, and that’s incorporated into, into their analysis and the rates they give us and the credit analysis that they do. So, yes.
Eric Hagen: Yes. Okay. That’s helpful. You guys are always very thoughtful on the mortgage market. Just generally. I mean, do you feel like there’s a lot of risk at this point that the Fed could actually sell Agency MBS from its portfolio. That was a conversation at one point. I mean, do you even see that being a risk on the table at this point. And then, like adjacent to that, I mean, how much risk do you think is priced into the mortgage basis that, the Fed actually hikes rates at some points this year.
Nicholas Letica: Eric, this is nick. No, we do not think that there is a risk that the – that there is any sales of mortgages out of the Fed as far as the – as far as whether things are priced in. The market’s very efficient. So, it’s an extremely hard thing to say. I would, say that the, overall, in the first quarter and to today, we’ve seen a little bit more of a muted response out of the mortgage market than we had in prior periods of, of volatility or kind of surprise volatility in higher rates. So, I think that’s a function of the fact that the market still does believe that is – I think the market does overall believe the, that the Fed will, will still cut at some point this year. But I, I do think that the spreads have been reasonably well calibrated to Fed expectations.
But like we’ve said, the things have stayed in a range, and, we like the long term exposure of being long mortgage spreads. But, you have to balance that against this near term volatility that can seemingly pop up at any time. We’re not done with the volatility in the market, that’s for sure.
Eric Hagen: Yes, that’s helpful. Thanks for the perspective. Appreciate it.
William Greenberg: Thanks, Eric.
Operator: And at this time, I’ll turn the call back to Bill Greenberg for closing remarks.
William Greenberg: I’d like to thank everyone for joining us today. And as always, thanks for your support.
Operator: This does conclude today’s conference. We thank you for your participation.
