Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Can I get an update for book value quarter-to-date?
A: (David L. Finkelstein - CEO, CIO & Director, Annaly Capital Management, Inc.) As of our last flash, which was Tuesday's close, net of our dividend accrual, we were off just inside of 3%, inclusive of that dividend just inside of 2% off.
Q: The targeted return on MSR increased to 12% to 14% from 10% to 12%, was that just better yields in the market? Or is there a different leverage assumption?
A: (David L. Finkelstein - CEO, CIO & Director, Annaly Capital Management, Inc.) It's predominantly the increase in float income associated with higher short rates projected. But Ken, do you want to elaborate?
A: (Ken Adler - Head of Mortgage Servicing Rights & Portfolio Analytics, Annaly Capital Management, Inc.) Yes, the ownership in the MSR asset involves the benefit of the float income, maintaining those escrow accounts. So the higher for longer change in rates just translates to a much higher yield at the exact same multiple.
Q: Can you talk about how MSRs are performing as rates continue to increase, and their effectiveness of hedging the MBS portfolio?
A: (Ken Adler - Head of Mortgage Servicing Rights & Portfolio Analytics, Annaly Capital Management, Inc.) In terms of spot performance, the speed is extremely stable, delinquency is extremely stable. And as the prior question alluded to, we have an increase in cash flow expected over time as the earnings on the float are not expected to decline given fed rate cuts coming into the market in terms of the expected pricing.
Q: The increase in the Onslow Bay correspondent activity, is that adding new customers or getting deeper with existing customers?
A: (Michael Fania - Deputy CIO & Head of Residential Credit, Annaly Capital Management, Inc.) A lot of it is the correspondent channel is not yet mature. We still believe that there's over 100 correspondents that are originating non-QM and DSCR loans that are not currently our captive customers. So we've been very aggressive in trying to build the correspondence. Some of it is spring seasonals, and a lot of it is also the growth in the actual market itself.
Q: Looking at Slide 6, there's convergence between the returns on the 3 strategies. In the current environment, what do you think the right tactical approach is?
A: (David L. Finkelstein - CEO, CIO & Director, Annaly Capital Management, Inc.) We like where we are at today. We think the 3 sectors are all fully scaled, and the portfolio is in a good balance right now. In terms of relative value, agency looks perfectly fair here. We're certainly sensitive to higher volatility that could materialize, albeit we don't expect to see anything like we saw last fall.
Q: On the MSR business, as that continues to grow and gain scale, can you talk about potentially bringing the servicing function in-house?
A: (David L. Finkelstein - CEO, CIO & Director, Annaly Capital Management, Inc.) We've looked at servicers in the past and have seen a number of them come to market. What we've learned is that it's much more efficient for us to outsource servicing. In the absence of significant scale, it's a very low-margin business. We have a considerable amount of flexibility by using multiple high-quality subservicers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
