Q4 2023 Redwood Trust Inc Earnings Call
Participants
Kaitlyn Mauritz; SVP, Head of Investor Relations; Redwood Trust Inc
Christopher Abate; CEO & Director; Redwood Trust Inc
Dashiell Robinson; President & Director; Redwood Trust Inc
Brooke Carillo; Chief Financial Officer; Redwood Trust Inc
Richard Shane; Analyst; JPMorgan Chase & Co
Donald Fandetti; Analyst; Wells Fargo Securities, LLC
Kevin Barker; Analyst; Piper Sandler & Co
Douglas Harter; Analyst; UBS
Kyle Joseph; Analyst; Jefferies LLC
Stephen Laws; Analyst; Raymond James & Associates, Inc
Eric Hagen; Analyst; BTIG, LLC
Steven Delaney; Analyst; JMP Securities LLC
Presentation
Operator
Good afternoon, and welcome to the Redwood Trust Inc. fourth quarter 2023 financial results conference call. Today's conference is being recorded I would now like to turn the call over to Caitlin Moris with Investor Relations. Please go ahead, ma'am.
Kaitlyn Mauritz
Thank you, operator. Hello, everyone, and thank you for joining us today for our fourth quarter 2023 earnings conference call. With me on today's call are Chris about a chief executive officer Dash Robinson President, and Bert Carlisle, Chief Financial Officer.
Before we begin, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward looking statements. Forward looking statements are based on current expectations, forecasts and assumptions and involve risks and uncertainties that could cause actual results to differ materially, and we encourage you to read the Company's annual report and Form 10 K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements on this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. And the reconciliation between GAAP and non-GAAP financial measures are provided in our fourth quarter Redwood Review, which is available on our website, Redwood Trust.com.
Also note that the content of today's conference call contain time-sensitive information that is only accurate as of today, and we do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances.
Finally, today's call is being recorded and will be available on our website later today.
And I'll now turn the call over to Chris for opening remarks.
Christopher Abate
Thank you, Kate, and thank you all for joining us today for our fourth-quarter earnings conference call. As I often do, I'll begin with some commentary around Redwood's broader strategy and market positioning for Dash and Brooke cover off on our operating and financial results in 2023, Redwood entered its 30th year as a public company. We took this milestone as an opportunity to complete a corporate renewal of sorts and to position the firm for the next big housing finance cycle for the last mile of the outgoing cycle has been stubborn, especially given the early year sell-off in rates. Our goal has never been to perfectly time that trade. Rather, we're working to ensure that the winds of change in housing finance squarely at our backs as market activity begins to pick up and regulatory changes begin to take shape. Putting it all together, we are on the precipice of several operational and strategic milestones that will help drive our story and our earnings in the decades to come.
The big part of last year's renewal was to strengthen our capital position has included reoptimizing capital allocated across our business lines and building a significant pool of unallocated excess liquidity to be squarely for offense as market trends begin to shift, we accomplished this through the completion of a number of financings in the fourth quarter as well as an inaugural unsecured debt offering in the first quarter of 2020.
For a second facet of our renewal was to boost our operating efficiency. As Brook will highlight, we achieved our goal of a 5% to 10% expense reduction in 2023, landing on a high end of that range in 2024. We have a similarly ambitious goal of further boosting efficiency through scaling our businesses and continued cost reductions. As we mentioned previously, over the course of the last year, we began deemphasizing direct portfolio investing in favor of co-investments in joint venture partnerships with leading private credit institutions. This strategic shift carries with it a number of benefits to our shareholders. First, these ventures are formed with large capital providers who have long-term strategic allocations to our core product offerings. Second, these joint ventures create a pre-established and reliable takeout for our products that enhances our liquidity and pricing power, ultimately resulting in more predictable revenues and profitability. This includes not only investment returns but also recurring fee streams earned in overseeing these joint ventures.
Finally, these partnerships help us organically scale our operating platforms at a much faster pace than we could achieve on our own, ultimately, strengthening our franchise and supporting further earnings power from our platforms. The establishment of new and accretive joint ventures is not merely an aspiration of ours after announcing one such arrangement in 2023 we expect to continue forging partnerships with additional light vehicles in the near term for 2024 when it comes to sourcing the raw materials that feed our joint venture partnerships we remain optimistic that the prospect of major bank regulatory rule changes, coupled with the balance sheet pressures that many depositories already face, will compel more of these institutions to partner with Redwood mission in turn, open a vast spigot of loans for our operating platforms that for years went straight to bank portfolios, often without the underwriting rigor demanded by the capital markets bill, the proposed Basel endgame regulatory changes continue to receive an onslaught of opposition from paid lobbyists. It does not change the fact that many banks still require additional risk capital for an outside capital partner to prudently manage their asset liability exposures associated with bond duration mortgages. Furthermore, the long predicted stresses now emerging from bank CRE portfolios make the solutions we offer all the more accretive with this in mind, we see banks looking for solutions and not waiting around for regulations to be finalized. This is evidenced by the number of banks we are now onboarding and the volume growth we are beginning to see and expect to increase over the course of 2024. This growth is notwithstanding any additional benefit that would come with a sustained decline in mortgage rates. We entered 2023 having secured new or renewed jumbo flow relationships with almost 70 banks onboarding. New banks can be challenging due to the work stream changes that working with an outside capital partner often requires. But as these value partners make the transition to working with us, they've been won over by the expertise of our talented team, our speed to close and our seamless execution. As our engagement with banks ramps up, it's important to note that our commitment to our deep base of non-bank originators has never been stronger. The message we have is those to all our origination partners for their banks or nonbanks is the same. You will operate more safely reliably and efficiently with a trusted partner and Redwood complement our focus on first-lien residential loans. We've continued to invest in our new home equity investment platform Aspire today. Home equity remains the largest untapped market and housing finance and housing affordability at its lowest level in decades. Homeowners continue to look for innovative ways to access the equity in their homes as opposed to moving since launching Aspire last year, we have grown our operating footprint with plans to extend to as many as 15 states in the coming months. To further address the opportunity we see in home equity. We also launched a traditional second lien mortgage product to our network in January, combination of second-lien loans and HGI. has resulted in a unique coordinated solution set for our origination partners. Our residential investor loan platform Corbus is also beginning to benefit from the pullback by banks in anticipation of higher capital requirements for investor loans. As we noted last quarter, we have been advancing negotiations with several banks on partnership opportunities that would allow us to add access to our existing pipelines with an eye towards offering our broad product set and deep capital markets experience. As we think about the year ahead and observe a period of heightened stress for many commercial real estate borrowers. It's worth reminding our shareholders that our business remains squarely focused on residential housing finance, whether single-family or multifamily focused. All of our assets are mark to market through our GAAP income statement offering confidence that our GAAP book value reflects prevailing market conditions. This is important to convey as industry concerns continued amount over the adequacy and trajectory of C-suite based accounting alternatives. As we take stock of these past 30 years. We're extremely proud of the role Redwood has played in providing liquidity to parts of the residential housing market, not well served by government entities. The long-term support of our shareholders has allowed us to continue pursuing our corporate mission of making quality housing, whether rented around accessible to all American households. Our business is built upon the belief that the best opportunities are usually found through initiatives that others won't pursue or trends they perhaps don't foresee. In fact, we believe that there is no one better positioned to support the changing housing finance landscape in Redwood. We're excited to share our thoughts what we see as this unique opportunity for our business as well as our current market outlook and corporate strategy at Redwood's upcoming Investor Day scheduled for March 19th.
I'll now turn the call over to Dash.
Dashiell Robinson
Thank you, Chris. I will now cover the performance of our businesses before handing it over to Brock to cover our financial results in more detail.
Residential Mortgage Banking continued its strategic momentum, notwithstanding a modest quarter over quarter, reduction in volume driven largely by seasonality as Chris articulated. Even though the timing and substance of the Basel end-game rules will inevitably evolve, bank management teams are prioritizing the ability to distribute 30-year fixed rate mortgage risks as the economics for retaining these loans have changed dramatically given the end of the era of cheap deposits. This takes commitment and time, especially in aligning the standards of the capital markets with internal processes and approach. As such, we're pleased to be actively engaged profitably with sellers that control an estimated 60% of jumbo market share, including 70% of the largest 20 banks with active mortgage businesses. Overall, for the fourth quarter, we launched $1.2 billion of loans at gross margins of 111 basis points, up from 80 basis points in the third quarter and above our historical target range of 75 basis point to 100 basis points. Approximately 25% of the quarter's volume was Boke activity with both banks and nonbanks. Over 55% of the quarter's total lock volume came from banks, up from 38% in the third quarter. We purchased $1 billion of loans close to 15% through our unique program with depository that allows us to settle loans directly into securitizations, optimizing our capital usage. We are complementing our bank activity with a continued focus on independent mortgage bankers or IM. B's, a critical group of partners whose business models have always centered around distribution to capital partners such as Redwood, all. And we estimate our $2.8 billion of locks in the second half of 2023 to represent approximately 5% of total jumbo market share compared to our historical range of 2% to 3%. While higher interest rates continue to impact overall industry volumes, we still believe our strategic progress is just beginning and deepening our partnerships with large market players. As such, we see significant opportunity to deploy further capital into this strategy because we support our banking partners and grow, including through the home equity financing products that Chris highlighted. Frick will speak more to this when she covers our outlook for capital deployment.
Finally, for this segment, securitization markets continued to be favorable and we followed our fourth quarter supplier transactions with two more thus far in 2024, backed by approximately $800 million in loans. Receptivity for these deals has been strong, and this execution has supported further momentum and locks, which quarter to date total of $750 million with continued strong credit characteristics, including 772 average phaco and 72 average LTV at an average gross coupon of 6.96%. As Chris mentioned, the broader pullback by banks is also a potential tailwind for Corbus. The last few weeks have brought refreshed dialogue around risks in commercial real estate portfolios of banks and other large portfolio lenders. The fundamental challenges that exist in certain commercial segments have driven many traditional lenders to the sidelines, opening up a potentially attractive client funnel for our platform. Once lending conditions normalize, Corbus continues to prioritize lending strategies backed by single-family and small-balance multifamily properties. The latter, typically 20 units or less reduced demand from sponsors amid persistently high rates cause quarterly fundings to drop 17% from the third quarter to $343 million. Term loan funding volumes increased 10%, however, and we continue to commit capital to our single asset bridge or SAB. platform and further develop other bridge product offerings. Notwithstanding the fact that rates remain elevated, we see runway to grow term production, including and the potential to refinance portions of our bridge book sponsors work towards stabilization. We continue to see several areas of heightened interest from real estate investors after launching our debt service coverage ratio or DSCR loan product in the third quarter, we saw a 20% increase in fundings in the fourth quarter for these loans alongside a 30% quarter over quarter increase in SAD. production. As was the case in Q3, farmers were also engaged around our renovate to rent and built around products, including aggregation lines. Typically, the Dominion of banks that support lease-up strategies, one certificates of occupancy are procured for investor loan products continue to attract attention from Capital Partners. We distributed $111 million of loans through whole-loan sales and sales to the joint venture that we closed in mid 2023. Our fourth quarter bridge loan securitization was also a significant achievement and that it allowed for increased capacity to finance our various loan types flexibility. We expect to be valuable over the next 24 months as lending conditions evolve.
Turning to our investment portfolio. Our activities since the end of the third quarter reflect progress in the evolution of our capital deployment thesis, including active portfolio management to recycle valuable capital and manage risk over the past several quarters, we have spoken regularly of the significant value embedded in our broader investment portfolio. This includes the net discount to face value within our books and relatedly our ability to harvest additional capital given low levels of leverage and continued strong credit performance. Q4 brought meaningful progress on this front as we completed three securitizations out of our investment portfolio. These transactions included a resecuritization of our reperforming loan book, our first rated securitizations backed by home equity investments and a $250 million revolving transaction backed by bridge loans. We have also continued to optimize our portfolio mix through the continued sale of non-strategic assets. Credit performance within our portfolio remained strong.
Overall, as Chris emphasized, our portfolio is back squarely by residential credit. Much of it seasoned and created organically through our operating platforms with over 85% of our overall capital underpinned by single-family housing, our RPL jumbo and single-family rental loan portfolios of all saw stability or declines in 90 day plus delinquencies since the third quarter as borrowers remain motivated to preserve the equity in their homes and protect their advantageous interest rates. Performance in our single-family bridge portfolio, which now represents close to 60% of the overall bridge book has remained resilient. Our SAB. portfolio, an area of anticipated growth continues to pay down as expected, and we are replenishing our revolving bridge securitizations, predominantly with new SAP production. Additionally, sponsors continued progress with build for rent projects. Many of which are now in the lease-up phase.
As we highlighted in last quarter's earnings call, the multifamily bridge portfolio remains a key focus area as borrowers grappled with the prospect of an extended period of higher rates. This portfolio, largely financial sponsors seeking to do modest amounts of improvement to the property drive rents and either sell or refinance loans were originally underwritten with average debt yields close to 9% and are underpinned by units fetching around $1,000 per month or less in length. A portion of the market less exposed to the upcoming delivery pipeline. While fundamentals behind these strategies, notably, occupancy rates and equity in the properties remained strong, 90 plus day delinquencies have increased, driven largely by sponsors facing increased costs who lack the resources to bring the project to stabilization. This creates opportunity for fresh capital that we believe is supportive of ultimate recovery to our loan book remains actively managed and for approximately 30% of the portfolio. We have seen sponsors and Jack fresh equity or perform under recast terms, and we estimate an incremental 20% of the multifamily bridge both qualifies for a term refinance today.
And with that, I will turn the call over to Brent.
Brooke Carillo
Thank you.
Dash try and find a GAAP net income of $19.3 million for the fourth quarter or $0.15 per common share compared to negative $32.6 million or negative $0.29 in the third quarter, resulting in a fourth quarter GAAP return on equity of 7.3%, significantly quarter over quarter increase in GAAP earnings with largely driven by $15 million of positive investment fair value changes compared to negative $42 million in the third quarter. This reflected the impact of declining rates and spread tightening on our investment portfolio, coupled with continued strong underlying performance of our residential consumer assets. Net interest income or ENI, was essentially flat this quarter as a modest improvement in bridge ENI was offset by lower portfolio NI from securities sold and higher interest expense. Our new financing activities. As we said in the third quarter, we still anticipate recovering a portion of the associated interest with Bridge nonaccrual loans. Overall, NI is expected to trend higher beginning in the first quarter. While GAAP earnings improved in the fourth quarter, the net effects of the common dividend and equity issuance cost book value per share to decline 1.5% from the third quarter to $8.64. Importantly, we achieved a positive total economic return of 0.3% for the fourth quarter. Earnings available for distribution or EAD. was $7.1 million or $0.05 per basic common share for the fourth quarter as compared to $12.6 million or $0.1 per share in the third quarter. The decrease in G&A was primarily due to lower income from mortgage banking activities on the quarter, income from residential consumer and mortgage banking activities decreased slightly in Q4 as the effects of seasonal factors on jumbo lock volumes were somewhat offset by a 31 basis point improvement in margins. Income from residential investor mortgage banking activities decreased from the third quarter as bridge fundings were lighter and spreads on term loans normalize compared to the third quarter were spread tightening benefited loan inventory. Note that in the fourth quarter of 2023, we evolved the calculation of EAD., removing the previously presented line item titled change in economic bases of investments. Additionally, we changed the presentation of our income statement at ATI. income net, which was $11.7 million this quarter and was previously captured within investment fair value changes, net line item income associated with HAIs attributable both to embedded accretion from underlying options on home and periodic fluctuations in value from factors like home price appreciation is all captured in our non-GAAP CAD measure. As previously discussed, we've continued to fortify our balance sheet and build our liquidity. Our unrestricted cash and cash equivalents as of December 31st were $293 million, which increased to $396 million at the end of last week. This represents a cash position that is $190 million higher. And since the end of the third quarter. On last quarter's call, we pointed to the low recourse leverage we carry and the investment portfolio and the opportunities that affords us to raise organic capital. Our securitizations during the fourth quarter underscored our ability to capitalize on that dynamic. And we ultimately generated $125 million of capital from the financing, as well as the two new BPL lines and we established in the fourth quarter, which gave us additional flexible capacity. Importantly, the term financing activities from our securitization allowed us both to reduce our margin, both securities repo and our allocation to third party portfolio assets, while preserving investments on balance sheet represent the majority of our $2.68 of portfolio discounts as a result of all activities on the quarter, we reported total recourse leverage of 2.2 times, down slightly from the third quarter. And importantly, recourse leverage in our investment portfolio decreased from the third quarter and was 0.9 times at year end. At December 31st, we had excess warehouse financing capacity of $2.1 billion, which we've since grown to $2.6 billion. Today, we expect to increase our capacity further to support the continued growth of our operating businesses. In addition to our existing cash position, we have approximately $318 million of unencumbered assets. Today, there remain a continued potential for capital which can serve both to fuel growth of our mortgage banking businesses for continue to repurchase corporate debt across our term structure.
We have delevered a capital structure through accretive convertible debt repurchases as well as the organic capital created and common equity issued through our ATM program from the beginning of 2023. Through today, we have retired over $200 million of convertible debt, reducing our amount of convertible debt outstanding by approximately 30%. We are also taking advantage of the opportunities that we see in front of us today and mortgage banking. As such, during the fourth quarter, we viewed the opportunity to raise common equity as a value accretive strategy given the blended mid 10s deployment returns we see today in light of the growing opportunity for residential consumer mortgage banking, we increased the capital allocated to this segment by $150 million since the first quarter of 2023, which we expect to grow another $50 million to $75 million in the near to medium term the decision to raise capital for this opportunity comes with a significant focus on the anticipated earnings accretion and future book-value growth. These earnings to create for our taxable subsidiary, we began last year by guiding the market that we will lower general and administrative or G&A expenses by 5% to 10% from 2022. While G&A increased quarter over quarter, primarily as variable and long-term incentive compensation increased commensurate with the improvement in quarterly GAAP earnings. We ended 2023 with $128 million of G&A, which represents a 9% reduction year over year. We remain committed to controlling operating expenses to achieve further cost savings of another 5% to 10% this year and sustain profitability while balancing strategic long-term opportunities.
Looking ahead, we feel confident about our strategic positioning given our excess capital. We look to continue opportunistic deployment of capital into products with attractive return profiles that are complementary to our mortgage banking businesses to support the dividend while we transition to a more capital-light model and mortgage banking returns crystallize at scale.
And with that, operator, we will now open the call for questions.
Question and Answer Session
Operator
Thank you. Ladies and gentlemen, at this time we'll be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, you may press star two. If you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Our first question comes from the line of Rick Shane with JPMorgan.
Richard Shane
Please proceed with your question and thanks, guys, for taking my questions this afternoon. I'd like to talk about the dynamics on the origination side and the residential consumer mortgage banking business. Obviously, there was a bit of a hit an uptick in the quarter on margin. You cite that it's above sort of the historical average. I'm assuming that that is a function of the movement rates and that being favorable to gain on sale. And if you could talk about that dynamic and what you're seeing in the first quarter, that would be great. But more importantly, I'd love to talk about sort of what you're seeing through the channel on. Are you seeing as capacity comes out or originators being more disciplined about margin and delivering loans that are more valuable as they're not chasing volume as they would at the inflection in the cycle.
Christopher Abate
Hey, Rick, it's Chris. Thanks for the questions. I guess just to just to talk about ready for a few moments on. We feel extremely good about our trajectory on some of this is in the context of, you know, housing market, housing finance market that's been extremely challenging. The origination market is probably the smallest. It's been in a number of decades. So to be taking market share against that backdrop, we feel really good about there's some things I'll mention in the last six months, we've locked loans with 135 unique sellers, which has to be a record for us.
Nobody represents more than 5% of our production. When you think about other aggregators, it's often the case that a few originators are responsible for half or two thirds of productions that I have and 135 in the last six months with nobody more than 5%. You start extrapolating that to as this market starts to turn around. Obviously, we had a selloff in rates to start the year. But at some point in 2024, rates should flatten out and start going down. So how we're positioned for that is extremely good from my standpoint. So that's that's a big part of what we're bullish about. I would say we did five securitizations in the fourth quarter. We've done a few resi deals in the first quarter, I think spread tightening has been part of the gain on sale story. Deals have been met with very robust demand, and I think people are really starting to get behind the story, particularly in consumer, which is exciting.
So I think for us a lot of it is in today's call, a lot of it is what's behind us versus what's ahead of us. And I think for resi and particularly for the balance sheet as Brook laid out and we're not we're not staring down, you know, Alcoa challenges, no doubt that the banks are dealing with with resume mortgages at cost. We're not dealing with commercial mortgages and CECL reserves. We all know that trajectory there. I think most people think that there's quite a bit of pain to go on. So having done what we've done over the past year with the balance sheet and is putting ourselves in a position, I think we have something like $285 million of excess capital as of today to really go on offense. I think our story is a little bit differentiated from them what you might see elsewhere as far as what's behind us versus what's ahead of us. But certainly outside of seasonality factors in the fourth quarter, we're really excited about the volume trajectory of our resi business. It's still a really tough market. But again, to have some of these underlyings that we're seeing are really foundational for this business to take off particularly as rates start to stabilize kind of.
Richard Shane
Hey, Chris, just to circle back, what with what I'm curious about is obviously we've seen demand for your channel partners, the originators decline on 2023 was a lot about rationalization of on the supply. What I what I'm curious about is when you speak to your channel partners, are they at a point now where they feel that supply and demand have achieved an equilibrium that is attractive for them to I mean, obviously having a strong exit is important, but is there enough volume and enough economics for them on it to support sort of equilibrium basis to make the business attractive again?
Christopher Abate
Well, I think obviously a big part of our business is the IRBs and the non-bank originators that's only been in the last six months or so, where banks, I think were up to 70 banks which were active with. I've been part of that dynamic. I think I think both are in different spots, I think with A& B's and some of them have have gotten ahead of others. As far as capacity corrections, I think there is some pain to go for some. And for banks, I think it's really the capital partnerships and we are working with a number of regionals, and it's really about working with loan officers and understanding the value proposition that we can bring. But certainly, I think I think our pricing has been aggressive. We're looking to take share at this point but it's still a very challenging market. And I don't think anybody is completely out of the woods from an origination standpoint because there's still a lot of capacity out there. The MBA and others estimate excess capacity. I haven't seen the numbers recently, but it's on We're definitely not, I think, at a point of equilibrium, but for us for our business as I mentioned earlier, as we've sort of dealt with our balance sheet, we feel great about our capital position. And so we're in a fortunate position to be really aggressive to the extent we want to be and take market share, which we're doing.
Richard Shane
Perfect. That's exactly it as looking at.
Thank you, Crest.
Christopher Abate
Thanks.
Operator
Our next question comes from the line of Don Fandetti with Wells Fargo. Please proceed with your question.
Donald Fandetti
As a can you talk a little bit more about the outlook for multifamily delinquency trends? They ticked up a little bit and I guess maybe more broadly, I know investors are worried about supply in some of that kind of hotter multifamily markets. Can you talk about what your thoughts are?
Dashiell Robinson
Sure, Dan, as Dash. I can take that on. I may spend just a minute on the on the bridge portfolio broadly because the contours of that book have migrated on not insignificantly over the past year, you know, I talked about sort of the pivot in our production mix over the past five, five to six quarters, really focusing more on single-family strategies and bridge, which was really the original thesis of the business going back a number of years. So I think broadly, we've been we've been pleased with the overall performance of the bridge book. I think we're clear-eyed about on some of what's going on in the multifamily market. Just some context for how the book overall has performed at all touch on multifamily last year, we saw over $800 million in paydowns in the bridge book cumulatively, which is about 40% of the balance of the bridge book entering 2023 on, we're continuing to see some really good buoyancy in the single-family strategies, both with SAB., which is an area, as I mentioned, we're continuing to grow from an origination standpoint as well as build for rent, which is underpinned by generally one to four unit housing.
Those projects are progressing and they're in lease-up mode in many cases, and we're starting to see real opportunity to term those loans out as well, which again, is the original thesis for those types of loans that help the term funnel. I think in multifamily, a few things that I talked about this in the prepared remarks. We are generally financing, you know, sort of BB. minus type of multifamily. Our average rents in place are about $1,000 a month right now that reflects, in many cases, 15% to 20% growth on rents from our sponsors, you know, since acquisition, but we're certainly cognizant of some of the headwinds overall, we do think that that piece of the market is less exposed to some of the supply on funnels that we're seeing for deliveries over the next year or two. But we certainly have seen some sponsors run into issues. I do think when we look at the book, we've always talked about getting ahead of issues, but also being able to delineate between sponsored issues and project issues, and there is an important difference there. I think the delinquency uptick you've seen in the book really reflects issues with sponsors on that are 60%, 70%, 80% of the way through a project and have just simply run out of the resources to finish it. But there's a lot of meat on the bone and I think what we found is significant interest from the sidelines and getting involved in projects. We took a few properties REO this quarter. We have significant interest in those. We anticipate having those under contract soon. And we have some loans which we're working through actively right now, where either the sponsors are bringing fresh capital to the table or we're finding fresh sponsorship to do so.
And I would point back just in closing for the response, you know what I said in the prepared remarks, the multifamily strategy for Bridge, we've been significantly more selective over the past five to six months preceding the quarters, it's been less than 15% of our overall fundings in that period of time. Most importantly, though, we feel like we've got our arms around the buck, and we've made significant progress with a good chunk of it. But almost a third of that has had active fresh equity infused or is performing under some recast terms over the past two quarters. We think another 20% outside of those is eligible for a term refi today and don't have a portion that are delinquent and the rest are really leasing up and running their projects. And so I think we're we're clear-eyed about the broader headwinds. I think we feel good about the markets we're in and the fact that our projects have meat on the bone for fresh capital. But certainly this is going to be an area we expect to have continued close focus from us over the next two or three quarters.
Donald Fandetti
Got it now and my follow-up is just on the dividend. Do you feel like you're kind of at the right level here.
Brooke Carillo
Yes. I think in our prepared remarks, we did touch on just our overall liquidity position. I think over the last couple of quarters, you know, we have had momentum in both mortgage banking contributed into line of sight for earnings to be covering the dividend and or in this case, the portfolio really carried away. I think last quarter we did make some comments at the outset on both just the amount of deployable capital we have today. I think that is probably the single greatest contributor outside of near term, a significant recovery in mortgage banking to give us line of sight back towards dividend. That, combined with some of our commentary on a continued expense target should provide additional support for the dividend as we go forward. We also have a couple of tailwinds with respect to net interest income just from that capital deployment and a continued recovery in some of our rich non-accruals.
Donald Fandetti
Thanks.
Operator
Yes, our next question comes from the line of Kevin Barker with Piper Sandler. Please proceed with your question.
Kevin Barker
As I've taken the question, this is Barak Fuzeon for Kevin Barker. Trying to size up the opportunity potentially partnering with homebuilders given housing dynamics. I know you mentioned last quarter you're seeing homebuilders pivot from a force out of for rent strategies. Is this a dynamic you're still seeing play out? And is this something you would look to do partnering with the homebuilders going forward?
Dashiell Robinson
Yes, this is Josh. That's a great question on. We look to do that through each of our mortgage banking channels. And one of the reasons we're trying to do that as I think some of the trends we saw three to six months ago are probably reversing again, candidly, if you think about just the strength of the bid from owner occupants with continued buoyancy in HPA on, I think some of those trends have probably reverse, but that's a big opportunity for resi mortgage banking, and it's still one we see in BPL. But I think the dynamics between just where cap rates are going broadly and then the owner occupied bed, those those can invert depending on the quarter. And so we still actively look to do that deal in both channels for that exact reason, which is those dynamics, it tend to shift quarter to quarter.
Kevin Barker
Thanks, Ash. And then a last one for me. I know you guys mentioned it, but can you just talk a little bit more in detail on the traction on the jumbo side. Now given the large opportunity with the banks facing a high degree of uncertainty.
Dashiell Robinson
I mean some other thoughts there just given the traction we have with so many banks at this point, it's really become less relevant. The some of the regulatory changes that that, you know, people banter about, I mean, obviously, on the common response or the baseline game proposed changes, that's going to take a long time to play out. But in the immediate term, when you've got 4.5% to 5% deposit rates. The area at the era of zero cost capital of banks is over and it's not nearly as profitable to portfolio loans. And in fact, there's quite a bit more risk just given how much thinner than IMNM. opportunity is. And so what we're hearing from banks as a capital partner makes a lot of sense, irrespective of what the risk capital rules might might say in the future. And so that's that's given us that that's embolden us and makes a lot of sense when you think about it because Redwood is he's not an originator as we like to say, and some banks can keep their customer relationships. We can buy servicing, we can we can let them keep servicing and one of the one of the ways we've added a lot of value, I would say the past year is helping banks get you're acclimated to the capital markets from loan file completeness on readiness, just a lot of things that you can do parking loans and portfolio. You can't do selling selling loan files and loans into the capital markets and so helping banks work through that has been a big part of the value add that we present. And I think that's been appreciated.
So what we're hoping is that the durability of that opportunity from there. I do think that as we invest the time and the resources to get banks plugged in and online, and I think that's a lot of effort on both sides. And as I said, as rates start to stabilize and come down, we're really excited about what that means for our business.
Kevin Barker
Thank you.
Dashiell Robinson
Thanks, Karthik.
Operator
Our next question comes from the line of Doug Harter with UBS. Please proceed with your question.
Douglas Harter
Thanks. Can you talk about either from an environment perspective or from a cost perspective, what you need to see happen for the investor mortgage banking to feel to deliver sustainable attractive ROEs?
Dashiell Robinson
Sure, Doug. It's dash on. I can if I can take a swing at that. Great question. And obviously a huge area of focus on. I think there's a few things going on in that space right now. As you know, we have some we have a very diverse product set, which I think is helpful to us. And we've seen really, really good progress in particular in our single asset bridge effort.
Just for context there, we did about $200 million of that product last year and $40 million in January. So the volume trends there are heading in the right direction. We talked about growth in DSCR. things of that nature. We were very pleased with the 10% quarter on quarter growth in our term book. But I think the reality of it is we're being very selective there. I think we're trying to be respectful of what the market is telling us in terms of just demand drivers and where capital is flowing on. There's the reality of that business, particularly on the term side and to an extent bridge where, you know, uncertainty around rates where rates are sort of reactivated as they are today. But there's a lack of overall conviction around where they're headed on is just the reality. We have to continue to work through in that business because unlike in residential, these loans, as you know, are not freely prepayable. So borrowers are making, I call on interest rates for lack of a better term when they lock in these loans. And when there's so much uncertainty, you've had a 40 50bip backup in the 10-year you can make as good a case, the 10-year is going higher as lower next quarter too.
And that sort of uncertainty is on, you know, is a bit of a headwind, but I think in general, we're trying to pick our spots. So I think lower rates and some conviction that they'll stay lower is helpful. But I also think in terms of where capital is flowing on, we're just being choosy around opportunities. We see a lot of deals come across our desk every day. That frankly, may may fit. Other people's risk profiles are better than ours. We talked about the de-emphasis of multifamily over the last five or six quarters. I think that's a decision we're very pleased with, Tom, if you look at how things have evolved in that space, and we're going to continue to pick our spots and really leverage the depth of the depth of our products. We do think our existing bridge book continues to be a great source of opportunity for term refinance. That's a huge focus area for our sales team and our sales team is building on the maybe the average loan balances are going to be a little bit smaller than they were a couple of years ago on, but we feel very good about how we're positioned, particularly when you when you bring in the opportunity for the banks as another funnel. We haven't talked as much about that in residential investor as we have in jumbo, but that's a big opportunity. It's one we're well positioned for, but we don't want to rush back in, you know, safer areas like SAP, where we're really leading. And we're going to continue to be, I think, selective because I think we're going to be paid to be more selective through time here in 2024.
Douglas Harter
Great. And then I believe, Chris, you mentioned that you had do you kind of view that you have $285 million of excess capital today. Is that kind of factoring in the remaining 24 convertible maturity or just yet just want to make sure I heard that number, right.
Christopher Abate
No, I'm not not fully. I think we said we had $396 million of cash as of last week, and we have $318 million of unencumbered assets. So we kind of need to factor all of that into the convert maturities. But I think I think the headline is we feel very well capitalized right now. We as we mentioned, we completed five securitizations in the fourth quarter and so we feel like we are in a position to get significantly more aggressive at a time when I think a number of our competitors are facing pretty substantial headwinds. I do think that having the benefit of taking months with fair value accounting, I think about where the stock is trading versus book and the quality of book. That's something that I think differentiates this business to a certain degree. So I think we're we're feeling very good about certainly very good about the converts, but also very excited to be deploying capital opportunistically and we very much see a path towards covering the dividend. We've got a lot of ways to get there. We haven't spoken much about the JV opportunities that we foresee, but those are those are things that behind the scenes are in later innings. So we're excited about is things that we can get done in the first half of the year. If not sooner. So that's a high level where capital is.
Douglas Harter
Great. Thank you.
Operator
Our next question comes from the line of Kyle Joseph with Jefferies. Please proceed with your question.
Kyle Joseph
Have a good afternoon. Thanks for taking my question. I just wanted to pick your brain on. I know it's early, but on the closed end second lien product and just how you're thinking about the size of that market margins versus the existing book and whether that's a bigger opportunity for you and how you see that versus Healon?
Christopher Abate
What close-in seconds is a product we've rolled out very recently in early 2024 with the way we're attacking that market is a combination of traditional product like a closed-end second, along with HTI., which is something we're still very bullish on. As I mentioned in my remarks, home equity is absolutely the biggest untapped market and housing finance, and we're all over that internally. And I do think to a certain degree on the path of rates will be a big factor. But you're seeing it's very tough to move on. Mobility is extremely constrained with most the vast majority of the country having termed out, if you will, on their homes at 3%, 4%or 5% rates. So I think we we're not as focused on the block as we are on closedowns. But I think we're very focused on that sector and Aspire, which is our HGR start-up and homegrown start-up. We expect originations there to go up hopefully precipitously as we as we get licensed in more states and get the business scale through origination.
It works.
Kyle Joseph
Yes, that's it for me.
Thanks for taking my questions.
Christopher Abate
Thanks.
Operator
Our next question comes from the line of Stephen Laws with Raymond James. Please proceed with your question
Stephen Laws
But I get asked them a couple of follow-ups. First of all, talking about the delinquency metrics kind of ticking up some on the multiyear, the core vest side. Can you talk about the outlook, say over the next two to three quarters as you continue to work through that, where do you think those peak ends and talk a little bit about resolution time lines that you expect to take losses as you resolve these? Do you feel like the collateral there supports your attachment point and maybe touch on the build to rent that went into REO that I believe the footnote said is under contract for sale this quarter. Maybe it's already happened, but can you give us an update there and whether you expect to take a loss on that?
Christopher Abate
Sure, arms. I think broadly, Steven, we'll probably stop short of predicting where D. twos are going. But I think we continue, as I mentioned, I feel very good about the real estate team that's underpinning us in the resolutions that we've had and generally have had either no severity or severities in the single digits where we've where we've had them on speed and honestly, creativity of resolution and just the discipline around that process is important. You know, the on the properties that we took REO time over the past couple of quarters, we did so cooperative leaves our loans are structured with a lot of different hooks that can incentive borrower to either resolution more quickly rather than waiting the customary year or two for foreclosure, depending in the state that you're in. So I think we're pleased with that. And importantly, we have a lot of demand for the real estate. And it's because like I mentioned earlier, you know, in general, there's a lot of meat on the bone in these properties. There's a lot of capital on the sidelines that I think centers and opportunities beginning to deploy on. We haven't closed that Gopher and project, which we expect to do that soon. We don't expect much if any loss on that.
So we have two other built around projects that are actually leasing up where we got, you know, actually some reverse inquiry interest this morning through a broker that's interested in purchasing those particular projects. So that the good thing is for our book on particularly with the demand drivers for leasing and the fact that in many of these cases, it really is just down to lease up as opposed to a significant amount of operational risk with renovation. I think we feel good about the general outsized demand to step in and recapitalize projects on. But most importantly, in terms of <unk>, the book in general, a lot of sponsors are sticking, whether they're driving rents on, you know, in the vast majority of cases on are they're replenishing reserves. They're doing all the things required to, you know, to get these projects over the goal line and as such are not talking about 50% of the book, you know, and what we feel is really good shape in terms of performing or eligible for our term refine. So we'll see how things go.
Like I mentioned we're clear-eyed about some of the headwinds that remain in that space. But given how the book is situated on, you know, we're optimistic for overall good outcomes.
Stephen Laws
Appreciate the comments there. And then a follow-up on the liquidity question that's been touched on a couple of times. Can you talk about whether you've you've used the ATM any year to date on how you think about evaluation of issuing off that issuing stock at various levels versus book for given what investment returns are as you deploy capital and maybe update us on what's remaining under that authorization and whether you expect to re-up that?
Brooke Carillo
Yes. Great question. And so a couple of things. As you we have not utilizing 10 year to date, we and we did and I explained some of our rationale there. You know, a lot of the proceeds that we add and that we raised in the fourth quarter, really that earmarked for the growing opportunity in residential. I think we used about net $50 million of capital for ready which has really grown every quarter throughout the year. Throughout 2023, we effectively issued around close to 90% of tangible book. And I know based on that math, we were looking at kind of like a mid 10s blended returns. That's a pretty rational payback period rates, we think based on the earnings accretion that really drives of our future book value growth through our taxable REIT subsidiaries over time. And so it was and can that math that we were looking at that drove the ATM utilization. We also look at it really comprehensively with some of the other actions taken on the financing front, it was a kind of broader deleveraging that we've done and that we've done of our capital structure to really term out some of our convertible debt and reduce our marginable securities repo and just kind of net reduced our overall convertible debt maturity stack and all of which we think is very accretive to our shareholders over the long term. And we continue to look at and the residential mortgage banking opportunity really on an kind of an earnings accretion basis to continue to fund that opportunity.
I would also just note that it's Adam. And given the we're very cognizant of how we deploy those proceeds and over then over what time period to make sure that we are crystallizing our assumptions on the earnings accretion for the ATM does afford us a nice way to somewhat match funds I've seen. And but that being said our stock is offense churn levels that we are assuming in the fourth quarter.
Stephen Laws
Great. Appreciate the comments and look forward to seeing all of you next month.
Christopher Abate
Thank you.
Operator
Our next question comes from the line of Eric Hagen with BTIG. Please proceed with your question.
Eric Hagen
Thanks, Howard. And going back to your comments around the NIM. and looking at the cost of funds on slide 32, how much of that balance would reprice and over what kind of timeframe if the Fed were to cut interest rates?
Brooke Carillo
We have a pretty and we have a, I would say, a pretty pro rata maturity schedule for our recourse leverage that really rolls throughout throughout 2024 and somewhat and on a somewhat balanced basis. And so a lot of our repo lines are a year in nature, but one of the most important things that we did in the fourth quarter was with the amount debt that we raised and into the first quarter with the unsecured debt is a lot of it has pretty attractive prepayment flexibility and optionality and with largely it being callable within the next two years. So we really do think it's a good option on where we are on the rate and the rate landscape because we're either going to crystallize those our turn through mortgage banking in the near term and at attractive gain on sale margins or put on longer-term investments at a pretty attractive return profile.
Eric Hagen
Peer group here, essentially all of the securitized debt is fixed rate, is that right?
Brooke Carillo
Yes, that's correct.
Eric Hagen
And then the investment portfolio and the capital allocation on Slide 29, do you feel like you can draw any more leverage against that portfolio and which assets are held unencumbered at this point? What kind of advance rate do you think you can draw against this?
Brooke Carillo
Thanks, guys, and then I'm sorry. I mean for Jeff and Chris mentioned we have another as of today, we've we have about $318 million of unencumbered assets. That's centered largely around some of our organically created subordinate securities for capital in our TL that we've had created through our mortgage banking initiatives. Same with on the Sequoia side, we have some of our reperforming loan securities.
Other multifamily, we have a lot of what we did last year was selling some of our less strategic or fixed rates that third party assets at a gain and into this environment, just given that they were fixed rate bonds that were largely nonstrategic and didn't carry as well as the rest of the investment portfolio. So I think that we've we've I think there's a couple of hundred million to raise there. And just given the advances, some of these are securities or assets that are already financed elsewhere and so we have on pretty tangible data points around lenders' appetite for those those assets. And then some of them we just have chosen not to finance and to mitigate some overhang of interest.
Eric Hagen
Thanks. Got it. Thank you guys so much.
Operator
And our next question comes from the line of Steve Delaney with Citizens' JMP Securities. Please proceed with your questions.
Steven Delaney
Thanks. Appreciate it. So Chris, you mentioned the upcoming 30-year anniversary. So how many of those 30 years have you have you been sitting at Redwood.
Christopher Abate
If you count the dog years, it's a lot more than 30 guess and they get some 18 or so.
Steven Delaney
Okay, Jeff, I was going to go I was going to be in the 20s, but I was it was data you sorry about that sales now seriously, I'm congrats for both the company, obviously, but great record overall at time and for your longevity and leadership there as well.
Well, done. I'm just looking at the jumbo volume in the last two quarters of the year, 1.6, 1.2 on what do you think next year if we were to for now until we see some potential rate relief, which we may or may not get, would you guys think $5 billion to $6 billion is a reasonable starting point for jumbo production next year? Or am I being too conservative?
Christopher Abate
No, I think that $6 billion range is definitely something we think is achievable. Obviously, rates are the big question, Mark, and so we can't predict the path of rates, but I do think that what we're seeing below the surface really gives us confidence that as rates start to flatten and come down the business is in a great position to scale. We are some there so much to do still with banks. I feel like we're just kind of scratching the surface with this getting banks online, various stages. And as I mentioned in my remarks, when you when you look at how the business changed after the great financial crisis, the vast majority of the jumbo business sort of moved on to bank balance sheets yet. And we think that's going to change. We think the regulations are going to change, but we also think that and the incentives that banks had to do that are no longer present. You don't no longer have zero cost capital and you've got a lot more scrutiny from an asset liability management perspective, you've had some banks some go down.
So for us, you've got this massive jumbo, some portfolio opportunity that we haven't seen in 15 years. So irrespective of kind of rates. And we're just very excited to be looked at as a capital partner again for that piece of the business that that just hasn't been, you know, up for grabs if you will, on the PLS side, people ask why it's securitization volumes. It stayed low after the great financial crisis. It wasn't because there were no jumbo loans just to being originated is because they were all in ending up on bank balance sheets. So to the extent that changes, that's going to mean really great things for us and the PLS market um. So that's that's really why we're excited. We think that there's structural changes happening with how capital is going to flow through the sector. And we noted that also applies for the investor loan business as well for core best. We're seeing great inbound from banks who are now dealing with seasonal challenges. So there's just a lot of headwinds out there. And to be sort of hopefully on the other side, a lot of a lot of that is why we're probably optimistic on today's call.
Steven Delaney
I'll tell you that duration, that 30-year book fixed rate duration, whatever it works out to blogs, a lot better in the bond portfolios in Boston and L.A. than it does on bank balance sheet. That's as far as just for the stability, the financial system as a whole. So no question.
Thanks for the comments.
Christopher Abate
Thanks, Steve.
Operator
Ladies and gentlemen, this does conclude our question and answer session. And it also does conclude our conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
