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Edited Transcript of NYMT earnings conference call or presentation 22-May-20 1:00pm GMT

Q1 2020 New York Mortgage Trust Inc Earnings Call

NEW YORK May 25, 2020 (Thomson StreetEvents) -- Edited Transcript of New York Mortgage Trust Inc earnings conference call or presentation Friday, May 22, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason T. Serrano

New York Mortgage Trust, Inc. - President & Director

* Steven R. Mumma

New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer

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Conference Call Participants

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* Christopher Whitbread Patrick Nolan

Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research

* Douglas Michael Harter

Crédit Suisse AG, Research Division - Director

* Eric J. Hagen

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Jason Michael Stewart

JonesTrading Institutional Services, LLC, Research Division - Senior VP & Financial Services Analyst

* Jonathan R. Evans

SG Capital Management LLC - Research Analyst & Portfolio Manager

* Jules Kirsch

* Mark C. DeVries

Barclays Bank PLC, Research Division - Director & Senior Research Analyst

* Matthew Philip Howlett

Nomura Securities Co. Ltd., Research Division - Research Analyst

* Stephen Albert Laws

Raymond James & Associates, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the New York Mortgage Trust's First Quarter 2020 Results Conference Call. (Operator Instructions) This conference is being recorded on Friday, May 22, 2020.

A press release and supplemental financial presentation with New York Mortgage Trust's First Quarter 2020 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.nymtrust.com. Additionally, we are hosting a live webcast of today's call, which you can access in the Events & Presentations section of the company's website.

At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York Mortgage Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission.

Now at this time, I would like to introduce Steve Mumma, Chairman and CEO. Steve, please go ahead.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [2]

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Thank you, operator. Good morning, everyone, and thank you for being on the call. Jason Serrano, our President, will also be speaking this morning as we talk through the first quarter presentation. I will be speaking to the company's overview and financial summary sections, while Jason will be speaking to our investment strategy and business outlook sections.

The first quarter was defined by 2 periods: January 1 through March 9, where the company continued to execute their plan, raising $500 million in accretive capital and deploying it into residential and multifamily credit investments. And post March 9, where we saw unprecedented market disruptions from the COVID-19 global pandemic. As a response to these disruptions, we took decisive action to restructure our portfolio and focus on our core strengths, residential and multifamily credit opportunities. And at the same time, we focused on reducing our exposure to what we can't control, short-term mark-to-market borrowings or repos.

Beginning on March 23 and continuing through the quarter end, we sold over $2 billion in assets, reducing our outstanding repurchase agreements by $1.7 billion, finishing the quarter with $173 million in cash liquidity, $1.4 billion in unencumbered assets and a portfolio leverage of 0.7x. In early April, we completed a $250 million borrowing against our unencumbered residential loan portfolio. Combined with the proceeds received from the settlement of securities sold in March, we were able to repay an additional $560 million in securities repo. After giving effect of these transactions, the company's liquidity improved to over $200 million while reducing our portfolio leverage further to 0.6x. These actions did come at a significant cost as the company had its worst quarter in its history, seeing its book value decline by 33% and temporarily suspending its quarterly dividends. However, we believe our efforts have better positioned the company to weather the oncoming economic storm caused by the pandemic and to recover some of the $300 million of unrealized losses carried on our balance sheet, allowing us to return to delivering the results to our stockholders that they have come to expect.

I will now move over to Slide 6, our overview section. As of March 31, 2020, our investment portfolio totaled $3 billion, and our total market capitalization was $800 million. As of last night's close, our total market capitalization had moved up to $1.1 billion. Today, our investment portfolios are 100% focused on credit strategies, choosing to manage our strength of asset management in both residential and multifamily, while reducing our dependency on mark-to-market leverage. We have 57 professionals employed across 3 offices, all working from home since March 13.

Moving over to Slide 8, where I'll discuss market conditions and housing fundamentals. On the economic front, COVID-19 has impacted the global as well as our country's economy significantly. Our first quarter GDP contracted 4.8% and is expected to decline further in the second quarter. Unemployment rate was close to 15% last month, and we saw lifetime lows in the 10-year treasury. Housing sales declined 17.8% last month, and home price appreciation is expected to decline 1% to 2% into the next year. In response to these factors, the U.S. government initiated several programs to help both businesses and consumers, committing upwards of $3 trillion to deal with this crisis. One of these initiatives, the CARES Act, which gives borrowers the opportunity to defer mortgage payments directly impacts our business. We have a history of dealing with payment interruptions from our borrowers. And we feel confident that as we emerge from this crisis, we will be able to assist and manage our borrowers back to their pre-crisis performance. In addition, given the dislocation in the mortgage credit markets, we believe this will present opportunities not seen over -- that we have not seen over the last several years.

In Slides 9, 10 and 11, I will address the COVID impact as it has had on our markets, our company and our response. The U.S., and more specifically, the mortgage market, started feeling the effects of COVID-19 in early March. On March 16, we started to experience increased margin calls. And by March 20, it was clear we were in a full-blown liquidity crunch. It was a combination of factors that impacted our company and our industry. Reduced liquidity access from the dealers for all types of collateral, decreased availability for credit-sensitive securities and accelerating price declines due in part to increased margin calls and a lack of buyer participants, which were quickly transitioning from return on equity investors to return on asset investors.

On March 23, we stopped meeting margin calls and began discussions on some form of forbearance relief from our securities lenders. Over the course of the next 2 weeks, we sold over $2 billion of assets, including 100% of our Agency portfolio and 100% of our Freddie K PO portfolio, reducing our securities repurchase borrowings by over $1.6 billion. By April 7, we were able to pay an additional $560 million in repurchase agreements by utilizing a $213 million in proceeds from sales initiated in March and $250 million in increased borrowings from our residential loan portfolio. As of today, the company has 3 lenders with a total outstanding of $1.1 billion in borrowings. We are in good standing with all, and ultimately, we never entered into any formal forbearance agreements. In addition, we have over $200 million in cash and $1.5 billion in unencumbered investments today.

On Slide 12, you can see the changes in the portfolio and leverage of the company from December 31, 2019, to March 31, 2020. Our company has a history of managing through volatile markets, but never have we experienced such rapid price declines without the corresponding underlying asset deterioration. Our decision to liquidate the Agency and Freddie K portfolios was a difficult one, but necessary as we needed to reduce low-margin high leverage strategies and levered noncash illiquid assets from our portfolio. We believe our remaining portfolio of credit investments gives us the best path to recover the book value declines that we have incurred. We will maintain a disciplined and measured approach as we continue to monitor the effects of COVID-19 on our markets and focus on credit assets that rely less on leverage from short-term mark-to-market financing.

In addition, we continue to focus on financing transactions that have longer committed terms and minimal or no exposure to mark-to-market. As we move into the financial results, we've included in slides 26 to 34 is our quarterly comparative financial information section that will help in aiding the discussions of our performance -- our financial performance.

On Slide 14, we'll go through the first quarter financial snapshot, which you can see our basic and diluted GAAP loss per share of $1.71 and comprehensive loss per share of $2.11. Our economic return for the quarter was a negative 32.6%. We temporarily suspended both our common and preferred dividends on March 23. We continue to evaluate market conditions and hope to reinstate our dividends in the near future. Our investment portfolio totaled $3 billion, with 78% in credit asset -- in residential credit assets and 20% focused on multifamily credit assets. Our average net margin -- net interest margin for the first quarter was 2.92%, up 2 basis points from the previous quarter. Our average asset yields decreased by 16 basis points, but that was more than offset by the 18 basis point decline in our cost of financing, primarily due to Fed actions, which began late last year. With $2 billion in asset sales and the related reduction of $1.7 billion in borrowings, our quarter end portfolio leverage was 0.7x, and our overall leverage ratio was 0.8x. As I previously stated, our current portfolio leverage is 0.6x today.

On Slide 15, our first quarter summary. You can see that we had $512 million loss in the first quarter -- I'm sorry, we had $512 million in equity raised in the first quarter with 2 successful raises, one in January and one in February, generating $20 million of accretive capital. In addition, we had $633 million in purchases through the first week of March. In the last 2 weeks of March, we sold $2 billion in securities and loans, and we had a GAAP net loss of $599 million and a comprehensive loss of $241 million.

Going into Slide 16, where there's further details of our financial results. You can see that we had net interest income of $47.1 million, an increase of $3.1 million from the previous quarter. We would expect second quarter net interest income to decrease due to the sale -- the portfolio sale that took place at the end of March. However, we don't expect a significant decrease in our net interest margin in terms of basis point spread. We had noninterest losses totaling $622 million, including $153 million in realized losses and $397 million in unrealized losses. These losses were primarily related to the $2 billion in asset sales and the markdown of our quarter end portfolio valuation.

Sales included $1.4 billion of Agency and non-Agency securities, $550 million of Freddie K first loss POs and $50 million in loan sales. Also included in the realized and unrealized losses was the impact of unwinding our entire swap portfolio. Company has over $300 million of unrealized losses still on its balance sheet, which we believe we can substantially recover in the future as the world reopens post COVID-19. We had total G&A expenses of $10.8 million for the quarter, an increase of $1.5 million from the previous quarter. This increase was largely attributable to $1 million related to long-term incentive costs -- amortization costs and a $500,000 increase in professional fees, primarily related to the expenses incurred over the last 2 weeks of the quarter. For presentation process, the calculation of net loss attributable to common stockholders includes our preferred dividends. Even though they were not declared, the preferred dividends must be paid in full prior to any common stock and therefore, included when determining net income for common stockholders.

The graph on the page shows that -- shows the 5 quarters of book value. The first quarter of -- for the first quarter of 2020, we broke out the realized and unrealized losses for the purpose of illustrating that almost 2/3 of the book value decline is related to unrealized losses, which we believe we can substantially recover in the future.

I'll now turn the presentation over to Jason, who will go through our investment strategy. Jason?

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [3]

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Thank you, Steve. Starting on Page -- on Slide 18. As Steve mentioned, our book is now weighted towards single-family at 78% versus 20% in multifamily. On 12/31, we had $1.5 billion of repo against $2.4 billion of assets. Looking at the end of the quarter, we ended with about $1 billion of assets with about $118 million of total securitization repo, which I'm going to get into a second, where a lot of the liquidity issues arose. That $118 million is net of restricted cash.

On Page 19, where we're looking at here on the single-family credit strategy. It starts with the residential loans, which is our distressed loan portfolio, where we've been purchasing subperforming loans that had a checker delinquency history in the past but showed elements of being able to continue paying on a mortgage loan with the servicing oversight help. In that case, we spent time with our servicer, working on the borrowers and determining their servicing strategies and looking at different ways we can maintain a borrower's current payment from being, let's say, 30 to 60 days delinquent to being coming a current loan or a 12-month current loan, which is the goal. Obviously, with respect to the COVID-19 outcome and economic distress, we're spending, obviously, more time with our servicers, ensuring that borrowers are getting the relief that they need and/or just understanding the terms of their loans. So this is not an unusual strategy for us in working with borrowers that we've managed nonperforming and subperforming portfolios collectively for over 10 years on average, on our team. So we have -- with our calls with our services, we have design strategies to meet the issues that have arose out of COVID-19.

On the performing loan strategy, where most of those assets other than outside $94 million is related to Scratch & Dent loans, these are assets we've been purchasing at discounts to par with respect to some kind of technical issue at origination of that loan that was supposed to be sold to either Agency or a non-Agency conduit. In that case, with lower rates, we're seeing a pickup of prepayment rates on our portfolio, which has been shortening the duration of our discount, which is actually increasing the return of that asset class. Performance has done well through this period as well on the performance side.

On the security side, where I'm going to spend most of my time, is where we saw a liquidity trap at the end of March. Lower prices led to higher-margin calls, led to more sales, led to lower prices and (inaudible). In that case, we saw an opportunity to sell for $105 million mostly in securities to reduce our exposure to mark-to-market liquidity, increase our liquidity against the margin calls. Today, with -- on the security side, as I said earlier, with $118 million of total repo balance outstanding after effective restricted cash, our focus is going to be on looking at the close to $1 billion of unencumbered assets and looking to obtain term financing structures. Steve mentioned earlier that there was a $900 million of potential term structures that we're looking at for our portfolio. We have a number of proposals out there, and we will be executing a few in a few weeks -- next few weeks. Looking to reinvest those -- that cash into assets that will have shorter duration, low LTV and high coupon carry, which I'll talk about in a minute.

Now going over to Page 20, we're looking at the distressed loan strategies and servicing strategy updates. Again, our SPL characteristics, we have been focusing on buying loans in this space at low LTV, about 73%, with a high cash carry on coupon relative to the conforming markets. In March, we actually saw the highest collections in our history of managing these types of loans, which we started the year at the end of 2019 with an 18% increase in total borrowers that are paying to -- in 1 quarter, we had a 6% increase as of March 31. After March -- middle of March, we saw the largest point ever in job losses of $23.15 million, which is about 8.7x what we saw in any 4-week time period during the Great Financial Recession. We quickly went from looking at some opportunities and refinancings and other strategies to shorten duration to more of a defensive posture and managing our loans for the delinquencies that we would see, given job losses and income losses altogether.

Today, we have a -- well, as of March 31, our portfolio had 7% COVID forbearance, which is actually, at that time, was in line with the Fannie, Freddie and GSE underlying forbearance rates around 6% to 7%. Again, this is a sub-performing loan book to be equal to a performing loan book and forbearance rates is quite an achievement. Fast forwarding to 4/30, we had 21% of loans that entered into forbearance relief plans. Those loans -- of those loans, 55% or about 9.5% of the total loans were current in the month -- in 2020. So while it's 21% looking further into the data, it shows that only 9.5% of the loans were current prior to COVID. So increasing our COVID forbearance rate from 7% to about 9.5%.

Again, we spend weekly calls with our servicers. We have design strategies for these types of outcomes. It's going -- the servicing industry is going to be under a lot of pressure over the course of the next few months as those forbearance plans were in place with respect to the CARES Act, where borrowers are calling and getting updates and finding with -- finding out if they're going to get extended or not. In our strategies, we try to deal with the borrower one by one and have design strategies for each borrower that were coming in and asking for relief. We think we don't see a one-size-fits-all strategy here with respect to servicing outcome. We are outside the CARES Act, given these are private loans. And therefore, we are able to provide, we think, better relief efforts and longer standing relief efforts for these borrowers.

On Page 21. Now skipping over to multifamily, where 20% of our portfolio currently sits. We -- as Steve mentioned, we sold out of our first loss position, which was mostly the $1 billion of sales we did in the quarter. We delevered out of the first loss and basically moved up the capital structure into the mezz bonds that we own on our balance sheet where we currently own today. So in doing so, we sold down about $800 million of POs first loss positions. And today, we have a portfolio with a minimum of 7% credit support in that security line item of $268 million, a 7% credit support against a portfolio of loans, which were underwritten at origination by our multifamily team. We feel very comfortable with the exposure there, limited exposure to student housing. In fact, when we look at the forbearance rates, it's a fraction of what we're seeing from the single-family side, and this is due to higher lease rollovers from expectations as well as landlords that have actually proactively reached out to tenants and helped them with securing government aid as relates to job losses or PPP plans, et cetera, as it relates to the CARES Act. So we think those efforts as well as solid fundamentals in the multifamily space has really helped keep the pay ratio high and the delinquency rates low on the underlying loans.

Going to Page 22. Spending more time now on our direct loan exposure, where half of our exposure is in multifamily space. Our -- what we call direct exposure is loans to multifamily properties, typically 150, 300 units. These are loans mostly in the South/Southeast part of the United States, where the underlying borrower is taking out a senior loan with respect to likely Freddie Mac and the average loan portfolio section box to the right. You can see that loan is around $29.8 million on average, where we provide a $6.2 million average mezz loan or a pref to -- from a 68% LTV to an 82% LTV at our position. Again, these are loans that are 2 properties in mostly the South/Southeast part of the United States where we see the best demand characteristics and migration from the Northeast, particularly to those markets. Job losses in those markets, we think, will be -- given the economies have already, in most cases, have come back with respect to isolation measures, we think we'll have a faster return and we'll outperform the Northeast markets with respect to multifamily.

In this -- in our portfolio, we have 50 mezzanine loans or pref loans, where we have 1 loan as of 4/30 that was in -- and as of today, that is in a state of COVID forbearance. Prior to -- up to 3/31, we didn't have any loans that needed forbearance relief. We do have 1 loan today that comprise of roughly 1% of portfolio. We're actively reaching out to our -- to the property managers and the sponsors on all these properties to get assessment of their forbearance-related plans with respect to their tenants. To date, we have been surprised on the level of activity and general performance underlying portfolios. This is an area that we will likely overweight with respect to the cash that we're raising from financing in the near future. So the expectation here is that we will continue investing into this asset class.

Switch over to Page 23, where we sold -- this is the Agency exposure. As Steve mentioned earlier, we took advantage of the liquidity that was being off of the market in our Agency book. We sold off the position to delever, increase liquidity, pay down margin calls. Today, this is an asset class that we find challenge with respect to generating any meaningful return. As of 5/8, the yield in this asset class was about 1.1%. You have a very short duration now in this market as they modeled out about 1.5 years versus a 5.5 year duration in January. So with respect to -- while the interest rate volatility is definitely lower, there's no structural changes coming to this market that will have to be analyzed that we've never seen before as it relates to COVID plan, forbearance release and different measures FHFA may roll out for those particular forbearance plans, whether those loans get bought out of the portfolio or stay in the portfolio will change the CPR rates. So these are additional factors that it will be very hard to model. There's no real history on that type of activity. And therefore, we think this is definitely an asset class that we'll be underweighting. We will continue using the Agency CMBS space as an incubator for cash to the extent that we were looking to raise new capital and put into the market. That is an area where we don't see negative convexity risk given the fact that indeed the borrowers and aligned multifamily CMBS from Freddie Mac, in particular, are locked out from any kind of prepayment potential. So the premium assets you can buy there have durations that are well -- can be well analyzed and modeled out.

On Page 25, just looking at our -- the outlook for the second quarter. Obviously, we're going to continue our credit focus where we have ample and experience looking at both distress and delinquency and dislocation and both the multifamily and single-family asset classes. In this market, we can target higher discounts and look for better upside with respect to the low rate environment. I mentioned earlier, we were looking at some, in particular, short duration strategies in multifamily bridge loans, et cetera, where a sponsor was likely going to take out a K-Series or Freddie Mac senior loan. And looking at the underlying fundamentals, may want to wait a year or 2 to take out that senior loan and lock them in for 10 years. That's an opportunity to provide bridge loan financing at high at low double-digit and total teens return opportunity to a 50%, 65% LTV type of property under a very short duration.

In single family, we're finding value in the Scratch & Dent markets where we're looking at assets with (inaudible) dollar price, where we see rates continue to come down and more prepayment optionality for those borrowers that are getting into -- that were supposed to go into a Fannie Mae securitization, Freddie Mac securitization and did not make it because of a technical issue. So our ability to refinance those borrowers into a Fannie, Freddie deal on the follow is something that we think will add value.

On our financial position, given our -- as Steve mentioned, our total leverage ratio of about 0.6x, plenty of cash on balance sheet with unencumbered assets. We are, again, as you said, looking at different proposals for term finance nonmark-to-market structures where we can redeploy that capital into a market that has opportunities in both single-family and multifamily. In that particular case, the goal for us is to focus on credit -- in credit to focus on low LTV product, where there is ample credit support protection to protect against a 20 -- some moderate unemployment rate in this market. So the prices in this market are definitely reflecting the unemployed rate that we've seen. Different measures and economists have looked at unemployment rate coming back from 20s level to a 13.5%, so even 11.5% flat line over the course 2021. These are the types of scenarios that we have to abide by and look at when we're looking at anything in the credit space to ensure that it has the downside protection and being able to utilize our expertise in managing distress.

So with that, I'll pass it over to Steve.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [4]

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Thanks, Jason. Operator, why don't we open it up for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Doug Harter from Crédit Suisse.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [2]

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Given the commentary you made around kind of target asset mix what do you think -- what type of leverage do you think your balance sheet can sustain right now? And kind of what should we think about in terms of pacing to get there?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [3]

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Yes. Look, Doug, going forward, I think all the -- all of us who are in credit -- the credit market, they're going to look to put more secure financing in place. So as we look at -- as we -- as Jason mentioned, we're in the process of working to get some of our [over] $1 billion of unencumbered securities out on some longer-term financing of 12 to 18 months nonmark-to-market. So it's going to definitely be on a lower leverage amount. Probably LTVs of 60% to 65%. So I would imagine at our 0.6x to 0.7x longer term, we'd probably start to look like between 1x and 1.5x. And that will depend on the underlying assets. But if we continue, as we -- I think we are going to do, given the opportunities today, focus on more loan-oriented type investing, either direct lending or residential loan purchasing, they'll be combined with some kind of longer-term financing. So again, given the kinds of advance rates we're seeing, my guess would be between 1x and 1.5x.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [4]

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And kind of just, I guess, how should we think about the net interest margin kind of in that environment? Just trying to -- using 1, 1.5 turns of leverage and kind of backing into what that would mean from an ROE kind of after the preferred dividend and after the expenses that's -- I guess, just trying to figure out how that -- what that sort of pencils out to? And are there going to be other sort of fee income that you've generated in the past?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [5]

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Yes. Look, I think to some extent, selling some of the assets that we sold, the Freddie K POs, for example, now if you think about the assets we did sell, we sold the Agency, which was a lower yielding, higher leverage strategy, and we sold the POs, which was obviously a high yielding, lower levered, but still levered strategy. The net margin was 292 basis points. I think at the end, when we get done with it, we're going to be around the very similar neighbor, 280 to 295 in basis points. And if you look at -- if you take the leverage out, keeping in mind that we have much lower cost of interest expense because of the lower leverage. I mean, I think we will still move towards generating a high single digit, low double-digit yield in this difficult environment. As we get more comfortable and get more financing in place, that's longer term, and we understand the cost of that financing, which has changed substantially from our discussions that started to take place in the beginning of April to today, it's probably come in 300 or 400 basis points. We're better able to judge what that looks like as we go into the end of the second quarter into the third quarter.

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Operator [6]

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Our next question comes from the line of Eric Hagen from KBW.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [7]

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I hope you guys are doing well. I have few questions here. On the preferred equity and mezz debt side, were there marks on those positions during the quarter? And then I have a...

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [8]

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Absolutely.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [9]

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Yes. Let me -- I'll just kind of go through my questions and you can answer them...

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [10]

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Sure. Okay.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [11]

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And then on the $300 million in unrealized losses that you think are recoverable, versus the $390 something million that were unrealized taken during the quarter, can you just help us tie together the difference there? And it looks like maybe the unrealized losses are sitting mostly in the resi credit portfolio, but can you get more specific on where those losses sit?

And then finally, you guys noted that there were some settlements of sales that took place post quarter end. Was there any impact on book value from that? And what's the outlook for the dividend to be paid?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [12]

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Yes. So the first one on -- sure. Thanks, Eric. The first -- the question on mark-to-market on the preferred. So we account for the preferred in 2 different buckets. One, if it, from an accounting standpoint, qualifies as a loan, it shows up as an individual line as a loan. And if it doesn't qualify as a loan, it shows up as an investment on consolidated subsidiary. But across those 2 asset classes, there was about $9 million of unrealized losses. Those losses are calculated based on how you go through any fair market valuation assessment, the Level 3 assets. We're looking at the current rates that preferreds are being issued at today in terms of our lending rates that we're active in the marketplace and our competitors as well as the underlying properties. So it was about $9 million on that portfolio. As Jason pointed out, there was only -- today, at April 30, there's only 1 loan that's delinquent, it's $3 million of the $311 million. All of them are meeting their cash flow commitments to us so far. And when you look at trying to reconcile the unrealized, and this is where GAAP accounting doesn't do favors to people who look at financial statements. So if you think about realized versus unrealized, realize is the difference between the amortized purchase costs and the sales price and unrealized is where you last marked it to the amortize costs. So we end up with $300 million on the balance sheet. But as you can imagine, we were in a positive position on some of those asset classes. So as you transition from up $100 million to down $300 million, that's where you generate your $400 million or $396 million. Another part of the aspect of the $396 million is the unwinding of the swap book, where it showed that we had a $73 million realized loss, but that was offset by $43 million of unrealized losses previously taken. So really a net of $28 million. So the $300 million that ends up on the balance sheet is across the residential portfolio. And I think the best way to look at that, Eric, is if you look at the fair value table in what the 10-Q is filed next week, it will lay out exactly where all those unrealized losses sit. I don't have that right in front of me, otherwise, I'd give you the numbers, but I don't have it sitting in front of me, so I don't want to guess off the top of my head, but it will be disclosed Tuesday when we file the 10-Q.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [13]

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Super. And then how about the impact on book value (inaudible) dividend as well, Steve?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [14]

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Yes, is it related to the sales? Yes. The sales that took place in early April were really sales that we entered into at the end of the March on a trade day basis and just settled in the first week of April. And then as a dividend, we are -- we continue to evaluate the markets. I would like to go through the June 1 payment cycle to see the delta change in the COVID cash payment flows, but we're very hopeful that we'll be reinstating the dividends in the near future.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [15]

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Great. And not to be too dense on the book value, but it sounds like no real meaningful impact from the end of the quarter on book value?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [16]

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No. I mean, look, we know from the other people that have come out and announced, there are several REITs that have come out and said their book values are up. But there's no question that securities portfolio is up. There is no question some of our other asset classes have improved, liquidity started to improve in terms of -- you're starting to see 2 way flows of securities and loan transacting, securitization is being done. We're still continuing to evaluate the residential loan market as it relates to forbearance. So we would prefer not to go out. While we feel comfortable that the book value is higher, we don't really want to put a number on what -- how much higher it is.

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Operator [17]

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Our next question comes from the line of Jules Kirsch from Jules P. Kirsch.

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Jules Kirsch, [18]

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I hope you do have an enjoyable weekend. My question concerns the likelihood going forward of further margin calls. Has that exposure changed? And if so, in what direction?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [19]

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Yes. I mean, look, just from the mere fact that we've almost taken $1.7 billion of liabilities off the balance sheet, that in itself has reduced the margin calls, which was one of the goals of the company. We have 1 non-Agency security out on a repo, which has been marked down significantly, and we believe the marks on that portfolio represents probably lower than where the actual prices of the security is today. So we don't foresee significant margin calls on that in the future. And then the remaining part of our borrowings on our residential loan portfolio, which has been marked to where we think represent market clearing levels on the loan side. So while there can be additional margin calls, we don't think we're in a situation where we'll have significant amounts of margin calls that put the company under distress again, unknowingly.

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Operator [20]

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Our next question comes from the line of Stephen Laws from Raymond James.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [21]

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Steve, good to hear from you guys. Hope everyone is doing well. Wanted to follow-up, maybe I apologize if I missed a comment, but a question earlier, somewhat around the dividend, but really more taxable income. I think one of -- in the release was $170 million of unrealized gain reversal. Was that in taxable income and has been distributed? Where does that leave you from a distribution requirement standpoint? And from a taxable income basis, how do we think about what is losses on security sales, where they're floored at 0 and can't offset ordinary income versus what's normal course of business and can offset ordinary income from the portfolio to drive that taxable income?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [22]

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That's a very good question, Steve. We -- obviously, when we look at our taxable distribution requirements for the year, it's a yearly requirement that we have to meet. And so when we suspended a dividend, that was 100% related to meeting near-term liquidity concerns. And as we go forward and set our dividend policy, obviously, we're going to take all those into consideration. But as we sit today, we feel confident that given where we think when we reinstate the dividend and our ability to generate the return to cover those dividends, we won't have any significant mismatch of what we're required to pay and what we are (technical difficulty).

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [23]

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Okay. And I know you don't have to -- still early in the year for dividend commentaries. I understand that. To think about cash flows a little more and just interest income on the loan portfolio, I appreciate the reconciliation of the 7% that's maybe 9.5%, roughly, I believe, Jason said at the end of April. Where do you -- do you have any thoughts on where that goes? Or can you give us some color on the geographic footprint of those loans? And then as they do go into some forbearance plan, how does that work with regards to accruing interest? Do you accrue interest for, say, 90 days or a certain period of time on your income statement? Or does it not run through the income statement once it starts taking forbearance?

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [24]

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Yes. So on the servicing side, the -- overall, what we're seeing is a market that's going to trend to about a 20% forbearance rate. And that -- in totality on the non-Agency side of the equation, including new performing loans that were originated in 2019, we think that number is going to be in the 20s. Our portfolio added 20 plus COVID relief plan effort, which most of those loans -- 55% of those loans were already delinquent prior to the COVID plans. We're giving extra relief without pursuing for closure measures, et cetera. We think we're going to continue to see that increase. We think we've seen the largest increase to date in that -- in the last monthly cycle in April. We have seen a number of borrowers that have made payment after the COVID plan has been in place for a 1-month deferral. And remember, our servicing strategies do not just simply have to offer a 6-month or 12-month forbearance. We're also looking at month-to-month deferrals as well to ensure that the borrower is not being put into a situation where he won't be able to access credit in the future, such as a refinance with a longer date forbearance.

And what everybody has read is that the -- as a loan goes into forbearance, the payment disruption is not reported to the credit bureaus, though it is -- it is reported is the fact that the borrower went into forbearance. So having a forbearance on your credit actually does limit your capability of accessing a refinance at lower rates. So we're very careful not to have that be a headwind against the borrower and lowering his overall payment in accessing record low mortgage rates, which we expect to see over the course of the next 6 months. So that is on a case-by-case basis. And again, we do expect that number to increase, but we think we've seen the largest increase to date in the month of March -- sorry, month of April.

As you can see in our portfolio, we bought these loans with a number of these loans already delinquent from the start. We are working with a loan servicer and servicers that have vast experience. And one of our largest servicers dedicated personnel to our servicing book. So we're not taking a performing loan servicing strategy and trying to figure out forbearance related to the relief plans. We have been in active conversation with a number of these borrowers for over a year. And those conversations continue through these forbearance plans. So we have borrowers that understand the relief efforts that our service has been providing to them. And we have a servicing team that is -- was basically selected and built to deal with a high level amount of delinquent performance. So we feel pretty comfortable about our ability to service through this environment. Obviously, the question of total delinquencies will be a function of total job losses and where those job losses are. Your question earlier is where our portfolio on a footprint. We have a national footprint portfolio. We have underweighted portfolios in selection in the Northeast part of the United States for a number of years, simply related to the foreclosure delinquent -- foreclosure time lines that are associated in a market like New York that could take up to 5 years to pursue a foreclosure. We -- in buying our portfolio, we are looking at loans that are more aligned with us, in the fact we have a 70-ish percent LTV. So there's plenty of equity in those loans for borrowers to want to keep access to that equity. Going through forbearance or delinquency just reduces the LTV or the borrowers' equity position. And that's something that they want to avoid as well as us. So again, we're aligned in these relief plans and do expect to have -- to outperform the market as a whole and potentially even the agency market with respect to their forbearance, relief plans on 100% performing loan portfolio.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [25]

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And Steve, the last part of your question about the accrual. If they go into the forbearance plan, we would stop accruing immediately. Typically, you do 90 days and then you stop, but if somebody is going into a plan, we would stop accruing at that point and accrue on the cash basis.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [26]

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Yes. That's great, as I think about my model, to have that clarified. Last question, if you don't mind. Really appreciate your disclosure in the deck and the financial tables. I wanted to ask one on Page 14 regarding the investment portfolio. Given the shift in mix, should we expect that yield on average earning assets to go up without the agency assets? Have these been historically adjusted to remove the impact of the lower yielding agency securities? Or how do we think about yield on average interest earning assets going forward without the agency MBS?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [27]

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I mean, if you -- so we really sold 2 large blocks of assets, the low-yielding agency portfolio and the higher-yielding Freddie K first loss POs. And so interestingly enough, when you take out those 2 portfolios, the net margin overall for the company doesn't change significantly. I would -- I did the calculation -- we've obviously done the calculations forward. And I would say it's going to be within 10 to 15 basis points of where we were last quarter, first quarter, 2.92% as we sit back.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [28]

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Right. That's good color. I know you mentioned the stable spreads during your prepared remarks, but I wasn't sure if things were shifting off.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [29]

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No, no, that's -- yes.

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Operator [30]

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Our next question comes from the line of Christopher Nolan from Ladenburg Thalmann.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [31]

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On the comments that you guys made in terms of ramping up to a high single digit, low double-digit ROE, what should we expect for the next couple of quarters? I mean, should you be able to achieve somewhere in that range in the second quarter or third quarter?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [32]

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Yes. I mean, Chris, look, I think the difficulty of coming down with a very specific ramp on where and when we're going to get there, really, I mean, one of the reasons why we've hesitated to reinstate our dividend is we want to get a handle around this June 1 cycle mortgage payments that come through with the borrowers and exactly, as these states start to reopen, how is the economy reacting and how quickly do we think it's going to happen. So as we go and put these longer-term funding against our unencumbered portfolio, that will give us some excess cash. That will -- as we start to reinvest some of that cash, we'll get a better sense of exactly when we think we're going to meet those goals. So we don't really, at this point, want to put a time line, a specific time line on that.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [33]

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Great. And then on the mezzanines for the direct lending, Jason, do you have -- on the mezzanine part for the direct lending, you're sort of in a position on the capital structure for your borrowers, which going into a credit down cycle, I think, for multifamily. I mean, how do you guys look to limit your losses on those?

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [34]

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Well, the loans are structured as more of a short duration type of opportunity. The premise of the borrower taking the loan was that there were some capital improvements, management issues that were underlying that property when the new sponsor took it over. So there's an expectation there that you'd have cash flow improvement underlying the property. And then that loan could be refinanced out -- our mezzanine loan could be refinanced out with agency supplemental. You have to remember that the multifamily market is backstopped by the Fannie and Freddie multifamily lending, senior lending. So there's plenty of liquidity on the senior loans that exist in that market. Part of the crisis that we've seen in the securitization space and residential loans is the fact that lending disappeared. So your ROA -- your ROE return now became the same return, but on an ROA basis. And that basically brought the price down 20, 25 points in some cases. So with -- where there is still lending and still active financing, you have not seen price declines to that extent. And this is one of those cases, the multifamily space where senior lending is still -- is basically backstopped by Fannie and Freddie.

In our case, we're mostly -- our assets, given the size of our assets, are mostly supported by senior loans from Freddie Mac. So to the extent that their management plan went in place, there's a potential supplemental that could be taken out. But overall, we've seen cash flows to be -- are pretty stable with respect to these assets. Again, our portfolio is mostly in the South, Southeast part of the United States. So with a 1 loan delinquency as of today, we are seeing very stable trends to that market. Obviously, unemployment rate benefits and PPP benefits have been helpful to the underlying tenants. We are supported by an 82% LTV on those loans. And to the extent -- our portfolio just wasn't originated. Obviously, this month, we have a seasoning in these loans where the LTV has actually decreased due to a 6%, 6.5% increase in property value prices or more, given the location of these assets, again, in the South, Southeast part of the United States, where you've had a lot of appraisal up to the high single digits and these marks are on annualized basis. So we feel comfortable about our position. We feel comfortable about our sponsors. Part of the reason the loan that we provide and the reason why we provide these loans to these sponsors is that they're well capitalized sponsors, they're not sponsors that come in with 1 loan opportunity and are not comfortable or don't know how to run a building. They are seasoned veterans in the space, have ample liquidity, ample access to the Fannie Freddie securitization financing channels. So we think that the liquidity and the sponsors are strong, the underlying assets have improved. Could we see increase in delinquencies with tenants, et cetera? Yes, absolutely. There are reserves, interest reserves, built into these loans as well. And there are various mechanisms that the senior lending forbearance plans will allow Freddie Mac as part -- is looking at up to 100 -- up 90, 120 days of forbearance for the landlords, which obviously will create income and help support that landlord if he has any liquidity issues. So we're not expecting a large increase of delinquencies in this space given the -- where the borrowers -- where the assets are located and the sponsors that support them.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [35]

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And Chris, one of the reasons we like this asset class is given the legal protection that we have in the sense that the senior is sitting at 68% LTV, we're sitting at 82% LTV. And to the extent they don't meet the terms of our loan, we can take over the property. So there's a significant amount of equity in the property that we think that protects us. And it has protected us historically. We have 1 exposure to a student housing, is a very small amount as a portfolio, which is probably the highest concern right now. And the 1 loan that's in the forward delinquency was a loan that has had issues from a property manager operation standpoint. It's more poor execution as opposed to a bad property. So while they've chosen a COVID forbearance plan because that's what the markets allow them to do, it is something that we're watching, but we don't have -- right now, as we sit, we feel very good about the properties, and they continue to perform above the expectation given where -- given what they could be performing.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [36]

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Yes, my concern would be not so much the LTV. It's more the debt service coverage that these guys have after they pay off their first lien mortgage.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [37]

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That's right. Well, yes. And part of the protection is, look, there's no cash distribution out until all of our payments are made. So there is a cash trap within these structures, which is helpful to entice them to make sure that they get these things back cash flowing properly so they can take cash out of the property. But look, that's why most of our loans are, the seniors are Freddie or Fannie. And as Jason said, there is programs from both those institutions to lend money to let them help them meet their cash flow requirements.

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Operator [38]

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Our next question comes from the line of Matthew Howlett from Nomura.

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Matthew Philip Howlett, Nomura Securities Co. Ltd., Research Division - Research Analyst [39]

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Look, it's monumental, if you get the financing, then that's going to be a lot of cash. And I think if I hear you correctly, you're going to sort of deploy it slowly and see how things go. I want to sort of put it out there with, if you do reinstate the preferred and common, and you can buy. Obviously, you can look at sort of various prices of your capital stack. But is that something you'll look at when you look at sort of capital deployment options?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [40]

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Yes, absolutely, Matt. I mean I think the question is, as we look forward to opportunities and we think about our business model, we need to figure out ways to create longer-term financing structures that eliminate or reduce the mark-to-market exposure, which going into March, we thought we were low levered, which we were at 1.5x. With over -- at the beginning of March, we had over $1 billion of unencumbered assets, but we still were unable to -- we still had difficulty in meeting margin calls. And so therefore, we reduced the portfolio. But as we go forward and raise and get additional capital, that those returns of those incremental investments are going to be driven towards reinstating the dividend and making sure that we cover the dividend with cash.

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Matthew Philip Howlett, Nomura Securities Co. Ltd., Research Division - Research Analyst [41]

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Got it. And then just when I look at the model going forward, I mean you guys have always had the net interest margin and also realized gains and sort of part of those debt NPL. I mean that's still going to be part of the core model, right, sort of looking at it, going forward, these gains you take on these whole loans and other strategies?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [42]

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That's right. No, that's right. I mean, that's absolutely right. Look, I mean, part of the $300 million of unrealized loss sitting on the balance sheet, there's going to be some recovery of that unrealized, and that's going to be an aspect of everybody's income in the REIT sector. Our direct lend generates fees that will always be part of our income, and we will continue to invest in assets that we think are distressed that give us a chance for capital appreciation. It will never be just 100% net spread model. That's just not our core DNA, and we think there's better opportunities in buying distressed opportunities.

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Matthew Philip Howlett, Nomura Securities Co. Ltd., Research Division - Research Analyst [43]

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Right. Certainly, it's always never been entirely a part of it. And then on the residential transitional loans, could you comment on what anything that's left in the portfolio? What you look at -- how you look at that market today and where the opportunities could be? Or is there something that you see value and opportunities elsewhere?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [44]

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Do you mean fix and flip? Is that what you mean?

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Matthew Philip Howlett, Nomura Securities Co. Ltd., Research Division - Research Analyst [45]

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Yes.

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [46]

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So on the fix and flip market, we have underweighted that. We have roughly $90 million of exposure there, are performing -- in that performing loan category. And we've underweighted it simply because of the refinancing that was happening in those underlying pools in the fix and flip market that was taking a lot of the borrowers out of the fix and flip loan into a 30-year loan invest in the non-QM market. Now with the non-QM market essentially closed, there's definitely going to be more pressure on the underlying borrowers there to make payment. Obviously, selling houses is more difficult in this environment. So we think there's going to be more extensions on the fix and flip market. I think eventually that will play itself out in the very near term, where extensions will increase somewhat probably beyond 20% to 30% ratios, if not more. And then the question is what happens to those properties after that. We've -- we are very confident in our ability to take over properties to manage profits, whether it's rental cash flows or into a sale. I see more of a distressed -- I see 2 options there, a distressed option to buy delinquent loans in that space where there's a lack of servicing from an originator that didn't have the servicing personnel to manage a 20% or 30% delinquent book where you can transfer servicing and basically utilize our servicing capability that we've built up on to do that. And the other side is that you're going to see more bridge loan opportunities in the space, shorter duration, hard money financing, if you will, to very strong sponsors, which could also provide an opportunity for us. In those cases, in the past, you'd take a 7-ish percent type of net coupon and you lever that 1x or so of what the market was doing. Today, you can do that on a levered basis and still generate a double digit return, which is obviously attractive. The question is tracking that sponsor and the ability to move the asset or rental -- or rent the assets, so ensuring that the cap rates in those markets are supportive of the debt that you're taking. So again, high coupon debt. That is -- some of that will have to be in the form of a flip. So we're evaluating it. We know the players in the space. We -- there's large portfolios that have been marked out for sale in the hundreds and millions of range that we've been tracking, and we think that there may be a better opportunity down the line from here than today.

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Matthew Philip Howlett, Nomura Securities Co. Ltd., Research Division - Research Analyst [47]

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Yes, it sounds like you guys have really a ton of different opportunities. And the last question, I might as well throw it in there. You guys, you're really one of the few REITs ever to manage successfully through a financial crisis. You got through it, you came out very strong on the other end. Just any broad comments in terms of this cycle versus what you saw during that cycle. And sort of how you're going to position the company today versus what you did last time around? Just any broad thoughts.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [48]

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You're talking about the '08 cycle versus this cycle?

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Matthew Philip Howlett, Nomura Securities Co. Ltd., Research Division - Research Analyst [49]

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Correct.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [50]

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Yes. Look, I think the problem with this cycle today is I think we're still in the middle of it, right? I mean we have massive amounts of people out of jobs. The hope is, as we get to reopening these economies, a large percentage of those people go back to work immediately, and we see the unemployment drop significantly. But we need to see that first before we try to figure out exactly how we're going to come out of this thing. So I think these opportunities are going to continue to unfold over the summer and into early fall. And that's why we are hesitant, Matt, to put out specific guidance on where we think the opportunities are going to be. But I think the big difference here is you had over-levered, over-priced assets and debt in 2008 on almost every single asset category. Today, it's really being driven right now just by the social distancing, the stay at home where the economies are literally shut down. So the asset price deterioration, we don't know where it's going to end up yet. And it is going to be a factor and function of how much government support is going to be pumped into the economy, both to consumers and businesses and how quickly we can reopen and/or get a vaccine to get the place back to whatever the new normal is going to be.

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [51]

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I'll further add that there's a little bit differences in asset selection and where the stress is in the system. So in 2008, the average borrower in the non-QM space at over 100% LTV. Today, a lot of the financing that was done was at lower levels. You can see it today in home sale -- homes on the market for sale. You're at basically 3.5 months of supply. That number jumped to over 10 months of supply quickly in 2009 into '10. So you're not seeing the stress on the supply side. You actually have a contraction of homes on the market. And again, there was a home shortage to begin with prior to COVID. And now that -- it's exacerbated by the lack of assets that are on the market. So in some markets, you may see home price appreciation because of that, where in some markets where there's still COVID-related shutdowns, you may see double-digit type of declines, particularly in the service sector, and particularly in markets like Las Vegas, where the economy is supported by the service sector and you have massive amounts of unemployed borrowers.

The other side of the coin is that the asset over the last 8 years that performed the best has been basically the smaller, lower-dollar properties across the market, where you can earn a higher coupon and finance those assets at similar rates. In this environment, with respect to job losses in the service sector versus other markets like information technology or -- and sectors like that, you've had basically 1/3 of the job losses in information technology than the service sector. So economies that are supported by those types of economies, you will see better results and better results in the middle price range of houses. So you'll -- simply looking at Ginnie Mae versus Freddie Mac forbearance ratios, you're seeing basically a 2 to 3x increase. I believe you'll see about 2 to 3x of forbearance plans in the Ginnie Mae space versus the Freddie Mac space, and you'll see an increase of supply in the lower income housing or lower price range than you would see in the mid-price range because of this. Before, it was across the board, in all asset classes, across all tiers of price -- home prices. And today, I think that you'll see more exacerbated distress in the lower income, lower price range.

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Operator [52]

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Our next question comes from the line of Jason Stewart from JonesTrading.

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Jason Michael Stewart, JonesTrading Institutional Services, LLC, Research Division - Senior VP & Financial Services Analyst [53]

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Jason, on the forbearance comments, just want to make sure I understood correctly. 9.5% of the forbearance, I guess, structures today were current and are now in forbearance. The rest were at some form of delinquency and/or in forbearance. Is that the right way to think about that?

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [54]

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Yes.

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Jason Michael Stewart, JonesTrading Institutional Services, LLC, Research Division - Senior VP & Financial Services Analyst [55]

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And when you -- in your comments, can you give us the average term of the forbearance agreement, if you don't mind?

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [56]

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Yes. So we've elected to do more deferments than forbearance. And that's simply because the borrower will have more liquidity in his mortgage loan after effective COVID-related shutdowns than a forbearance. The GSE just last week passed through new servicing regs and that was -- that establishes that borrowers after forbearance will go into deferment. We're already doing that now. So we thought that was a better model from the beginning, which is why we elected to go through deferment and it adds less stress on the servicer as well to track it. And also because our borrowers often speak to our servicing personnel that are -- that is allocated to that loan, this also creates kind of a monthly dialogue on what's happening. And so we can design a longer-term structure if necessary. So some of these borrowers didn't even -- obviously, didn't know the extent of their job loss or income loss. And so it would be hard for us to say that 3 months, 6 months, 9 months or 12 months is appropriate. So taking a month to month type of approach we thought was a better result and then structuring into what could be more of a long-term solution once the effects of the COVID-19 economy has been impacted and overcome. Yes. So again, forbearance is not utilized to the same extent it is on the Fannie, Freddie portfolio that you see out that's been reported. And in the case of deferments, it is a month-to-month forbearance, if you will.

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Jason Michael Stewart, JonesTrading Institutional Services, LLC, Research Division - Senior VP & Financial Services Analyst [57]

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Okay. And I would expect that part of that plan is to keep contact rates up. And I think to your comment, I just want to make sure I understood this correctly. Do you think that at the end of this cycle, we will be in this portfolio back to pre-COVID payment levels? Is that what you're characterizing this plan as an ultimate outcome?

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [58]

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Yes. I mean, look, there's going to be -- it's going to bifurcate. We have loans at 4.5%, 4.78% coupons. The refinance market today will likely approach 3%, if not lower. So there's substantial spread for these borrowers to refinance into -- to achieve lower financing costs, which is one of our goals. And so that will be on one side of the equation where borrowers are not long-term impacted with COVID-related distress and can continue paying and take advantage of low rates, and we want to avail our borrowers to that outcome. On the other side, there will be borrowers that will not be able to continue paying, lost a job or have some kind of permanent damage in their fiscal side of the equation. So those are situations we're going to have to work out with the other loss mit plans we have in place, such as to even lose or short sales to avoid foreclosure to the extent we could rent back the property to those borrowers, we will assess that as well, which are all plans we put in place after 2010 managing tens of thousands of mortgage loans that were nonperforming loan space. So we -- you have to assess whether the borrower has the ability or not and then put the borrower into the right plan. When that assessment is done, we just believe it was too early in March to make that determination upfront, which is why we want the high contact ratio, and we think it serves the servicer and the borrowers better by overcommunicating.

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Jason Michael Stewart, JonesTrading Institutional Services, LLC, Research Division - Senior VP & Financial Services Analyst [59]

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Understood. Okay. And then one high-level question. When you think about term financing, and I don't need details on what you're currently discussing, but generically at a high level, over the medium term, what does term financing look like for structured credit in the mezzanine part of the capital structure? And what impact, more specifically, do you think that has over time on asset prices? I would imagine loss adjusted yield is one component. But if you could remove that and just talk about the impact of what financing looks like and the impact on asset prices over time, that would be helpful.

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [60]

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Yes. I mean we expect asset prices to improve as the term structures are more utilized across the market. Again, in March, you basically lost repo financing across the entire securitization market. When I say lost, you had, obviously, margin calls, but also inability to add assets onto facilities to meet margin calls. In the thick of it in March, counterparties wanted cash or treasuries and did not want to increase their book with respect to new assets to meet margin calls. So there was a complete shutdown of securitization market. A lot of these mezzanines asset classes were sold with the concept of taking repo leverage against these assets that generate a double-digit return in the mezz space. So when you lose the financing, you have to back out the price decline to get to generate a double digit return. That's what you saw in the market in March and into April. So as the term financing structure is more utilized, we do expect prices to increase. We've already seen since 3/31 a pretty meaningful increase in asset prices in the security space, which was the most distressed part of the market. And that's due to financing proposals out there. I'd also mention that financing proposals, we've seen financing proposals from a number of counterparties. We evaluated a number of proposals. And initially, the proposals were fairly expensive in March and into April. We took a stance of waiting for better clearing levels once some of the -- some players were selling out large positions and need emergency financing. Since that is cleared, for the most part, we've seen level -- we've seen pricing come down from high single digits on these type of portfolios to mid single-digit type of financing costs. So I think we were rewarded by waiting, and we were only able to wait because we didn't have the same -- we didn't have a cash liquidity issue into April, which would have forced us to take that financing at these -- at the higher level. So we had the ability to be patient with the financing, use it opportunistically, which we've done, and we will likely put one in place shortly and likely will be in that mid-, type of range, single-digit yields with advance rates anywhere from 55% to 75% depending on the asset and the securitization type.

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Operator [61]

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Our next question comes from the line of Jon Evans from SG Capital.

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Jonathan R. Evans, SG Capital Management LLC - Research Analyst & Portfolio Manager [62]

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Can you just talk a little bit about maybe in the medium-term or longer term, how you kind of view the capital structure now with where you are, where you want to get to from a leverage standpoint relative to kind of the preferreds, et cetera? Do you expect to get more term financing and not raise more preferred debt? Can you just talk about your guys' thought process? Seems relatively expensive now.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [63]

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Yes. I mean, look, I think given where the stock is trading, both preferred and common, we have no interest in going and accessing the market at these levels. I think we feel like to the extent that we can get longer-term structured finance against the assets that we're investing in, that's going to be the way that we're going to focus in the foreseeable future. Right? I mean, I think if you look historically what the company has done accessing the equity and preferred markets, it's been when we can raise accretive capital. And we got -- we want to get -- we've got to get our stock price back closer to where book value should be before you even contemplate that. And our preferreds are trading in the $16 to $18 range. That doesn't make any sense to go out and do 10% or 11% preferred. So I think we have better access to lower costing capital and structures -- loan structures than we do in the actual equity capital market. And from a ratio of preferred to common, we have $2 billion of equity, and we have about $500 million of preferred, so 1.5. Obviously, we took the $700 million hit to our common side. So the preferred is a little bit larger percentage. But we've also -- the dividend on the preferred and dividend of common closely track each other. So it's -- one, it's not that much more accretive or destructive right now as we sit here today. We need to reinstate all the dividends before we get a better sense of cost of capital and where our stock starts to perform after we reinstate the dividend.

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Jonathan R. Evans, SG Capital Management LLC - Research Analyst & Portfolio Manager [64]

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And then just relative, I know it's a Board decision in the future, but some of your peers have paid their common dividend with stock. Is that something that you guys look to do to preserve cash?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [65]

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We -- right now, this is not a consideration, especially when our stock is trading at less than 50% of book value. We don't need to do that, and we would prefer not to reinstate a dividend with dilutive stock issuance. We'd rather wait until we feel comfortable that we can meet all the dividend requirements in cash, which like we've said on the call that we hope that's in the near term.

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Operator [66]

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Our next question comes from the line of [Douglas Crockett from NH Holdings].

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Unidentified Analyst, [67]

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Two quick and relatively simple questions. The first one, on the balance sheet, you have $2 million of equity, as you said, and you show $2.7 million of liabilities, but yet you said there's a 0.6 leverage ratio. I'm just wondering which of those liabilities are disregarded.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [68]

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Yes. So the liabilities, there's a lot of securitized debt on our balance sheet. So we're only -- when we define -- if you look at the definitions back in the glossary -- in the notes on the particular pages where the leverage ratio is calculated, we use what's called callable debt. And so let's see. If you go to Page 12 on the presentation, that's -- and you look at the financing, we're really just reflecting the debt that we've -- that is callable in nature in the portfolio side, the $1.4 billion of debt is really what we consider callable. The other debt that's in the balance sheet on the -- in the balance sheet statement is securitized debt, which truly doesn't have any call back to the company requirement. So it's collateralized by very particular assets that are in the structure that doesn't have any risk back to the company.

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Unidentified Analyst, [69]

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Well, following up on that, though, isn't that the same way you classified the multifamily loans in the past, the $17.8 million that you ended up having to liquidate.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [70]

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That's right. That's right. The $17.8 billion of multifamily debt was related to securitizations. And if you look at our balance sheet today, we don't have any of that. That's all gone, okay? And so the liabilities that are left that are securitized debt is we have $1 billion of residential securitized debt and another $31.034 million and $38 million. So the total of those 2 is about $1.1 billion in securitized debt that's not -- has no call back to the company.

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Unidentified Analyst, [71]

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So were there no margin calls then on that $17.8 billion previously.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [72]

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No, no, no, 0.

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Unidentified Analyst, [73]

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They weren't involved in margin calls. Okay? You just liquidated that to help with the other margins.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [74]

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Well, the POs, those -- the $17 billion is related to the structure that the securities were issued off of. The POs that we actually owned, we add them out on repo, that was mark-to-market and was receiving margin calls. And that's one of the asset classes we elected to sell to reduce those margin calls.

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Unidentified Analyst, [75]

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Second quick question. With regard to the multifamily second mortgage positions where Fannie and Freddie or Ginnie, whenever, is senior. If they go into a forbearance agreement, is NYMT's second position loan payable at that point or not payable? Or are they forced also into forbearance?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [76]

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They are forced into forbearance, but what does happen is the property itself is cash strapped. And so they need to come current with our forbearance interest prior to taking any cash out of the structure. And right now, we only have 1 property that's in a senior forbearance, which is the one that we're one forbearance on.

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Unidentified Analyst, [77]

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And then they are in continued forbearance, what, the cash is obviously -- I mean, obviously, these properties still generate cash. That cash is...

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [78]

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That's right. Well, typically, what happens is, obviously, the reason they're going to the agency to ask for forbearance is they have a higher percentage of renters not paying rent, which is not the case so far in our portfolio, but in the case where it does happen, and they're asking for relief. But the money that they receive on their rents is distributed forward, it's just a net number that they're being lent to cover their DSCR requirements for the month. To not getting lent the entire amount of rental income for the month, they're getting lengthy amount of money that fix this -- that essentially fills up the bucket.

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Unidentified Analyst, [79]

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And that additional lending, that is senior to NYMT's second mortgage position?

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [80]

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That's right. But the way that lending is currently structured from the agencies is that is a loan for a short -- for a 12-month period that they need to repay. So I think that's one reason why many of -- I think that's one reason why many of them have elected not to take it. I mean, it's a 12-month mandate, but doesn't really solve their problem. So I think many of these sponsors have liquidity to meet the needs so far. And so I think they look at the cost of that debt for forbearance versus their other liquidity options, and that's where they're making the decisions.

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Operator [81]

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Our next question comes from the line of Mark DeVries from Barclays.

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Mark C. DeVries, Barclays Bank PLC, Research Division - Director & Senior Research Analyst [82]

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I appreciate this may be a difficult question. But of the 23% hit the book you took in the quarter from unrealized losses that you're optimistic you'll get back, do you have a sense for how much of that is due to the market pricing and higher defaults? And how much of it is higher discount rates? And also, just how are you thinking about what the market is pricing in from a default perspective relative to what you expect? I'm just trying to get a better sense of how much of that could ultimately come back to you either through reversal of marks or just realized cash flows.

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Jason T. Serrano, New York Mortgage Trust, Inc. - President & Director [83]

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Yes. I mean the initial hit the market took on these prices is a function of lack of financing and then also forced sales, which then caused more markdowns and then more selling. So that negative feedback loop that was created in March was basically more of a technical decline. So that initially brought prices down out. As the markets go back to work in some communities and stay-at-home measures are in others, the market is evaluating the unemployment rate and the credit side of the equation. Through the last month, obviously, we've got a lot of reporting on unemployment rate per market and what the governors' plans are per state. We've had increases across the board in the asset classes in the securitization sector, simply because of the modeling done on unemployment rate was only a fraction of the losses of -- taken on the bonds relative to the liquidity issues that we're experiencing due to lack of financing. So as I mentioned earlier, with financing channels coming back more in term structure orientation versus monthly mark-to-market repo, we do expect prices to increase, to withstand for -- to back into basically an ROE of a double-digit versus an ROA of a double digit.

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Operator [84]

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At this time, I'm showing no further questions. I would like to turn the call back over to Steve Mumma for closing remarks.

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Steven R. Mumma, New York Mortgage Trust, Inc. - Chairman, CEO, Acting Principal Financial Officer & Principal Accounting Officer [85]

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Thank you, operator. The company's priority continues to center around the health and safety of our staff, partners and community. We believe our business continuity planning and infrastructure has positioned us well for the reality of working remotely. While these last 6 weeks has caused us to maintain a more defensive approach to investment and liability management, our long-term goals of delivering attractive risk-adjusted returns remains in place. We appreciate all your questions during the call today, and we look forward to discussing the second quarter in August. Have a safe and healthy Memorial Day holiday weekend, and thank you very much for your participation. Thanks, operator.

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Operator [86]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.