Good morning everyone, and welcome to the First Quarter 2025 Earnings Call for Annaly Capital Management. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. I would now like to turn the conference over to Sean Kensil, Investor Relations. Please go ahead.

Good morning, and welcome to the first quarter 2025 earnings call for Annaly Capital Management. Any forward-looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in the Risk Factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the disclaimer in our earnings release in addition to our quarterly and annual filings. Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date hereof. We do not undertake and specifically disclaim any obligation to update or revise this information. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings release. Content referenced in today's call can be found in our first quarter 2025 investor presentation and first quarter 2025 supplemental information, both found under the presentations section of our website. Please also note this event is being recorded. Participants on this morning's call include David Finkelstein, Chief Executive Officer and Co-Chief Investment Officer; Serena Wolfe, Chief Financial Officer; Mike Fania, Co-Chief Investment Officer and Head of Residential Credit; V.S. Srinivasan, Head of Agency; and Ken Adler, Head of Mortgage Servicing Rights. And with that, I'll turn the call over to David.

Thank you, Sean, and good morning everyone, and thank you for joining us. I'll briefly review the first quarter and our performance before turning to the current environment given the elevated volatility we've seen post quarter-end, and then I'll provide an update on our outlook and positioning for each of our businesses. The first quarter looked relatively benign in hindsight, though 10-year treasury yields did trade in the 65 basis points range over the quarter and ultimately foreshadowed some of the rate volatility we experienced in April. January and February were characterized by generally healthy fixed income demand and positive risk sentiment. However, conditions began to deteriorate somewhat in March amidst discussion of the new administration's trade policy, which shifted the outlook and led to an underperformance in risk assets and a retracing of the tightening in spreads from the first two months of the quarter. Our portfolio performed well, delivering a 3% economic return during the quarter, and in addition, we increased our common stock dividend to $0.70 per share, underscoring our earnings momentum. Our capital allocation to agency increased slightly to 61% as we deployed accretive capital raised through our ATM into the sector. Economic leverage increased modestly to 5.7 turns at the end of the quarter, though remained at the low end of our historical range. Now, turning to the macro landscape in April, markets have been struggling to decipher competing narratives in recent weeks. The shift in U.S. trade policy has further weighed on consumer and business confidence and is likely to impact economic growth over the foreseeable future. And while inflation slowed in the first quarter, tariffs should lead to higher goods prices over the medium term, which risks 2025 representing a second consecutive year of limited inflation progress for the Fed. Interest rates and financial assets broadly have exhibited meaningful volatility following the tariff announcements, and in just the past few weeks we've seen treasury yields traverse a similar size trading range as they experienced during the entirety of the first quarter, leading to a cheapening in balance sheet intensive assets and a widening of agency MBS spreads in tandem with other spread products. As we have conveyed in recent quarters, we believe it pays to be prudent given that we have earned our dividend at lower relative levels of risk, and accordingly we entered the year with our lowest economic leverage in a decade and enhanced our liquidity throughout the first quarter to $7.5 billion in total assets available for financing. Combined with an actively managed and well-hedged portfolio, this prepared us well for the volatility that ensued in April. Now to focus specifically on our businesses and beginning with agency, $3.5 billion in notional portfolio growth in the first quarter was driven by purchases of largely increased intermediate coupon TBAs, which lagged relative to production coupons during the rate sell-off in the fourth quarter and early part of Q1. These securities also offered a more favorable convexity profile and attractive carry as roles improved in the first quarter. Additionally, they should prove the most durable area to invest, as the economy continues to slow. On the hedging side, we maintained a disciplined approach with respect to our interest rate exposure given the macro uncertainty. The prospect of regulatory reform led to a widening in swap spreads early in the first quarter, which allowed us to better balance our hedge exposure by shifting some of our longer-dated swaps into treasury futures. We also layered in a modest swaption position as implied volatility cheapened somewhat in the first quarter. Post quarter-end, the MBS widening, which began in March and accelerated in April, has been more pronounced versus swaps relative to treasuries as swap spreads have narrowed to historically tight levels. Now it is important to note that throughout this recent volatility episode, funding markets have demonstrated stability, and when macro stress further subsides, we do expect the focus around MBS to return to the fundamentals: inexpensive valuations, a muted prepayment environment, and durable financing markets for the agency sector. Now shifting to residential credit, our portfolio ended the quarter at $6.6 billion in market value with $2.4 billion in capital. The decrease in portfolio size of $340 million quarter-over-quarter is attributable to opportunistic sales of third-party securities as well as an increased pace of securitizations in the first quarter. Credit spreads began to widen in March as AAA non-QM spreads were approximately 20 basis points cheaper on the quarter with subsequent widening post-quarter end. In an encouraging sign of the residential credit sector's resilience, the new issue market remained open throughout the significant volatility experienced in April and spreads have since tightened from the peak experienced a couple of weeks ago. Now as it relates to the housing market and specifically home price appreciation, momentum continues to decrease as affordability is burdening potential borrowers. In addition, increases in available-for-sale inventory have weighed on shorter-term supply and demand dynamics. The housing market is exhibiting signs of increased regional disparity as several areas that experienced outsized HPA post-COVID are now displaying a modest reversal of those trends. Despite the negative momentum that a portion of the market is exhibiting, the national housing market appears to be on stable footing given record levels of borrower equity, low delinquencies, tight underwriting standards, and the longer-term deficit of single-family homes relative to the size of the population and current demographics. Onslow Bay's correspondent channel lock and acquisition volumes remained strong in Q1 as we finished the quarter with $5.3 billion in locks and $3.8 billion of fundings. Our vigilance regarding the quality of our credit is best evidenced by our locked pipeline, which exhibited a 758 weighted average FICO and a 67% CLTV. The OBX securitization platform closed six transactions in Q1 totaling $3.1 billion, including our inaugural HELOC transaction as well as a non-QM private placement. Post quarter end, we priced two additional securitizations totaling $1.1 billion reflecting the programmatic nature of the platform, and since the beginning of the year we've manufactured $540 million of proprietary credit assets at mid-teens expected ROEs for Annaly and our third-party funds. Moving to the MSR business, the portfolio ended the first quarter relatively unchanged at $3.3 billion in market value comprising $2.7 billion of the firm's capital. During Q1, we settled $28 billion in principal balance of previously disclosed purchases while adding approximately $3 billion in UPB across our bulk and flow acquisition channels. We were disciplined in growing the portfolio in the quarter as we expect supply to stay elevated throughout 2025. All else equal, as the origination community should continue to monetize MSRs given historically compressed gain on sale margins. As the mortgage origination and servicing industry consolidates, we've strategically aligned ourselves with industry-leading subservicing and recapture partners that should create clear competitive advantages for our platform. We believe that greater efficiency and technological investment in the mortgage industry provide the potential for enhanced portfolio yield through increased recapture capabilities and a superior borrower experience. Our MSR valuation increased very modestly driven by a marginally steeper SOFR curve and tighter spreads on observable MSR consisting solely of deep out-of-the-money collateral. With a 3.23% aggregate borrower rate and less than 5% of the portfolio with a mortgage rate greater than 5%, our MSR holdings are differentiated relative to the broader servicing market and our exposure to higher note rate MSR, the segment of the market that depreciated over the quarter is negligible, contributing to our relative outperformance. And lastly, related to MSR, the fundamental performance of the portfolio continues to exceed our initial model expectations as serious delinquencies are approximately 50 basis points. The portfolio exhibited a 3.4% CPR over the quarter, and increased escrow balances and resulting float income have provided positive tailwinds. Now, all told, while the outlook remains uncertain, our portfolio is diversified, liquid, and actively managed, which should allow us to perform across a variety of economic scenarios. We continue to believe this portfolio construct has significant synergies with the potential for superior risk-adjusted returns as evidenced by delivering a positive economic return in each of the past six quarters. And while volatility presents its challenges, we're encouraged by the underlying dynamics in this environment, including highly attractive new money returns, a steeper yield curve, and declining financing costs. Now with that, I'll turn it over to Serena to discuss the financials.

Thank you, David. Today I will provide brief financial highlights for the quarter ended March 31, 2025. Consistent with prior quarters, while our earnings release discloses GAAP and non-GAAP earnings metrics, my comments will focus on our non-GAAP EAD and related key performance metrics which exclude PAA. Earnings available for distribution per share for the quarter was consistent with the prior quarter at $0.72 per share. Earnings were primarily driven by lower average repo rates of 4.56% compared to 4.93% in the prior quarter, along with higher coupon income on higher average investment balances. These increases were partially offset by lower swap income due to the unwinding of swaps, which were replaced with future positions that do not have an interest component in EADs. Considering continued strong earnings driven largely by reduced repo funding costs and higher average investment yields, we increased our dividend from $0.65 to $0.70 per share for the first quarter. Given our outlook for 2025, we expect to maintain this level for the remainder of the year, all else equal. As of March 31, 2025, our book value per share was $19.02, a modest decline of less than 1% quarter-over-quarter. After accounting for our aforementioned dividend, we achieved an economic return of 3% for Q1. Our individual businesses all contributed positively to our economic return despite the challenging macro environment in the latter part of Q1. For the quarter, we saw gains on agency, MBS, resi credit, and MSR portfolios of $1.89, $0.08, and $0.05 per share respectively. However, declines in our hedge positions modestly outpaced these gains at $2.14 per share. Over the last year, we have spent time on our earnings calls discussing the various additions and expansions of funding options available to our credit businesses. Our financing strategy is defined by our diversified structures, and given our size and scale, we have access to a wide range of funding options including bilateral repo, our in-house broker-dealer sponsored repo securitizations, credit facilities, and warehouse financing. We took advantage of the robust funding markets during the quarter and added term to our repo book at attractive spreads. As a result, our Q1 reported weighted average repo days extended to 50 days compared to 32 days as of the fourth quarter of 2024. Since the end of 2022, we have added $2.1 billion of warehouse capacity, including supplements for new products and non-mark to market and committed facilities within the residential credit business. This brings total capacity to $3.9 billion across 10 counterparties as of March 31, 2025, with a utilization rate of 43%. Additionally, we have added $1.6 billion in capacity in the same period within our MSR business. This is consistent with portfolio growth, bringing the total available committed warehouse for MSR to $1.8 billion across three counterparties as of March 31, 2025, with a utilization rate of 50%. After quarter-end, we upsized an existing credit facility within the residential credit business, bringing our current total capacity across both businesses to $5.8 billion. Annaly’s financial strength is further evident in our unencumbered assets, which ended the first quarter at $6.3 billion, including cash and unencumbered agency MBS of $4.7 billion, which is approximately 60% of the dedicated capital of our agency business. In addition, we have approximately $1.2 billion in fair value of MSR that has been pledged to the committed warehouse facilities but remains undrawn and can be quickly converted to cash subject to market advance rates. Together we have approximately $7.5 billion in assets available for financing, up approximately $600 million compared to the fourth quarter and representing approximately 60% of our total capital base. Finally, touching on OpEx, our efficiency ratios increased moderately during Q1 due to the timing of certain expenses. However, we expect expenses to normalize and full-year OpEx to equity ratios to align with historical levels, all things being equal. Now that concludes our prepared remarks, and we'll open the line for questions. Thank you, operator.

Thank you. Our first question will come from Bose George with KBW. Please go right ahead.

Everyone, good morning. Can I get an update on your book value quarter-to-date?

Sure, Bose. Good morning. As of Tuesday evening, our book value inclusive of the dividend, economic return was off roughly 3.5%. And to give you context of how it has evolved coming out of the Easter holiday weekend, the economic return was roughly off 4.5%.

Okay, great. Thank you. And then just can you talk about your outlook for spreads? And how does what's happening in the swap market play into that? Does it have more to do with swaps normalizing? And also just any thoughts on what regulators might end up doing with the bank SLR and what that could mean for the market?

Sure. Let’s first talk about swap spreads, because obviously a lot of factors have driven mortgage widening, and swap spread tightening is one of them, but also volatility. As it relates to swaps, it’s important to back up and talk about how the swaps market has evolved over really the past decade. Beginning with post Dodd-Frank, swaps ultimately were all cleared and as a consequence margined and marked to market on a daily basis. So effectively they eliminated credit risk. Another evolution obviously is the transition from LIBOR to SOFR. So overnight treasuries are the benchmark, which also reduces any risk associated with that instrument as a hedge. And the last point to note is they’re synthetic, and so there’s no balance sheet risk associated with swaps. So effectively what’s occurred over the last decade, Bose, is that swaps have become the risk-free yield curve in the U.S. And as a consequence, your best carry as a hedge is going to be that risk-free curve. So it’s a very attractive hedge from a carry standpoint. However, it doesn’t have the highest correlation to mortgages. Treasuries actually exhibit greater correlation, and that’s largely because of balance sheet risks. Now, the way we look at it is we’re looking to balance carry and correlation and strike the best risk-adjusted return as a hedge. We think we’ve done that effectively. Now what’s occurred over the very recent past is as we got to April 2, beyond a lot of volatility ensued, and as a consequence that flight to quality was more reflected in swap spread tightening as opposed to a treasury rally, albeit treasuries have now since rallied back, and that’s what’s driven the underperformance of agency relative to swaps. So our view is that as we do get to hopefully a better outcome on these trade negotiations, you will see volatility decline, and you’ll see swaps normalize and widen. That’s our view, but it’s going to be predicated on greater confidence on the outlook as it relates to trade and also market volatility subsiding. Now your point about the regulatory environment, obviously coming into the year, there was a lot of anticipation about rate reform, and that did lead to swap spreads widening largely because of the anticipation that it would free up balance sheet on the part of banks and particularly broker dealers and banks so that they could intermediate balance sheet intensive products with greater capabilities, and that did get put on the sidelines a little bit given the other priorities of the administration. But our anticipation is that we will have broad regulatory reform coming down the pike. I think the Treasury Secretary said you can anticipate the third and fourth quarter to see the benefits of that when he was interviewed early this week. The Fed obviously has a new regulatory chair coming in waiting for confirmation in Bowman. Treasury is well focused on it as are the other parts of the administration, FDIC, and we do expect that to be a focus. So SLR is obviously on the table and then likely a full re-proposal of Basel Endgame and other accommodations to make balance sheet more friendly in the intermediation of treasury market and other sectors in markets to be more fluid. So we’re hopeful, and we’ll wait to see, and we do think it will be a tailwind to spread swap spread widening in the coming quarters. Does that help?

Yes, that’s great. Thanks for all the color.

Sure.

Our next question will come from Doug Harter with UBS. Please go ahead.

Thanks. David, you mentioned that you came into the year with your lowest economic leverage. Just thinking now that spreads have widened, how you’re thinking about leverage today, whether this is an opportunity to increase it or with volatility likely or potentially to remain high, you would kind of keep it as is?

Sure, Doug. You bring up the two opposing forces in terms of how we look at leverage. Number one is that spreads are wider, which would suggest you would take more risk and add more leverage, but on the other side of the equation, a lot of that is driven by higher volatility. And as a consequence, it makes taking leverage up more risky. So when we look at how we’re positioned currently, we’re trying to balance those two competing forces, and positioning-wise leverage has ticked up modestly this quarter, but we’re still inside of six turns. Until we see volatility come down, or at least we can forecast it, we’re probably going to keep things close to home. We’re optimistic that things will continue to subside in terms of market conditions liquidity and volatility, but there’s still a lot of uncertainty, and so our inclination is to keep things close to home. We’ll let leverage drift a little bit, and we’re not to be overly defensive when we don’t think we need to be, but we’re going to keep it conservative for here, Doug.

And I guess just a question on that, right? If you wait until you see volatility kind of decline, don’t you risk kind of that the spread movement tighter since that is the bulk of widespread there’s so wide; it’s higher volatility. Just kind of how you balance that offense and defense?

Well, first of all, I’d say if you look at our spread shocks, for a 25 basis point tightening in spreads, the portfolio makes nearly 10%. And right now spread durations are a little bit longer, so that’s a little bit over 10%. It’s more than a sufficient opportunity to generate return under that eventuality. And yes, it is a difficult puzzle to assess given the fact that you’ll miss some of that spread tightening. If you think about it, these two competing forces you want to move quickly. But if you think about the alternative, if all of a sudden we do have a reinvigoration of the extreme volatility that materialized between April 2 and April 9, that’s going to be quite painful. And that’s what we’re tasked with being responsible about. So the return will be certainly rewarding if spreads do tighten, but we want to make sure that the portfolio doesn’t get unwieldy in terms of managing leverage and duration in the absence of that and a retracement of some of the common assets ensued in the past week or thereabouts.

Great. I appreciate those answers, David. Thank you.

Thank you, Doug.

Our next question will come from Rick Shane with JPMorgan. Please go ahead.

Hey, guys. Thanks for taking my questions this morning. Look, obviously large portfolio dealing with incredible uncertainty and high degree of volatility. It does and you’re also in an environment where I think you’re investing in at least nine different coupons. It looks like during the quarter you shifted incrementally towards a little bit more of the discount bonds. Is that sort of strategically where we think you should be going, or not where we think you should, but where we should expect that you are trending over the next two to three quarters?

Hi, Shane. This is Srini. Thanks for the question. Overall, we feel like at this moment, particularly in the first quarter, rolls were starting to look pretty attractive in the intermediate coupons and the intermediate coupons have underperformed in the sell-off that we saw in the fourth quarter, and they were on a relative coupon basis pretty attractive. Over the last month or so, we still find the intermediate coupons quite attractive. We do have a general bias towards rates going lower rather than higher, which again suggests we should be in intermediate coupons. But pay-ups have come off a lot since the end of the fourth quarter, so pay-ups are looking much more attractive now. So, we do like specified pools up in coupons. So, when the opportunity presents itself, we will add some specified pools up in coupon, but our TBA positions will remain in intermediate coupons.

And Rick, I’ll just add, to Srini’s point, we did add a lot of 4s and 4.5s and those are around the $93 to $95 price bonds, and if we do get a rally, those assets will trade long for quite some time. So we’ll really benefit from that. And then conversely in higher coupons, if you think back to fall when the ten-year rallied to $3.65 or thereabouts, speeds really accelerated on those premium coupons, and we’re certainly sensitive to the refinance ability of cost of your higher coupons as well. So we think that’s the right sweet spot.

Got it. And do you think that we’ve been in an environment where all mortgage borrowers are rate bulls, and all mortgage originators are rate bulls and we’ve been in an environment for the last eighteen or twenty-four months where people have been financing homes with the expectation that they’ll be able to refinance them very quickly? Additionally, the technology for refinance and the industry structure is evolving. Do you think that on a like-for-like basis, we will see speeds substantially higher than we would have expected historically based upon modest moves up in the stack based on more modest rate moves?

The short answer would be yes. We got a glimpse of this in fall of last year, as David mentioned, when rates rallied and mortgage rates got below 6%. Cheapest to deliver sixes, which were roughly 75 basis points of incentive, refinanced at a speed one month speed of 38 CPR, and 6.5s with 125 basis points of incentive paid at almost 52 CPR. These are faster speeds than what we saw experienced in 2019, but not as fast as what we saw in 2021. The reason is that in 2021, we were at historic low-end rates, so there was a lot of media effect. But the combination of higher loan size and a shift in originations from bank originators to non-bank originators has definitely made the cheapest to deliver universe much more negatively convex today than it was pre-COVID.

Got it. It’s interesting to hear the phrase media effect, which we have not heard for a while in this space, but it’s a good point as well. It’s not a factor I was considering. Thank you guys very much.

Thank you, Rick.

Our next question will come from Eric Hagen with BTIG. Please go ahead.

Hi, thanks. Good morning guys. I think you talked about housing prices and some moderation there in certain areas. I mean, do you see weaker housing prices becoming systemic under any scenarios, or do you think it’s really more likely to be isolated? And if it does stay relatively isolated, do you think that could have any impact in any way on agency MBS spreads or conditions in the securitization market?

Sure, Eric. This is Mike. I’ll take the first part of the question regarding housing. I think when talking about housing, the first thing that you need to do is take a step back and assess what that market has done. So housing prices are up 47% since year-end of 2019. They’ve outperformed significantly. They’ve outperformed analyst expectations. Even over the last two and a half years with the mortgage rate at 6.25%, home price appreciation has still been very strong. What you are now seeing is inventory has increased. Inventory is up 18% year-over-year but is up close to 50% from February of 2022. So longer-term, inventory is still 25% below where we were pre-COVID, but in the shorter-term it has increased. And what you’re seeing is this spring selling season is weaker than past seasons. Existing home sales, it’s the lowest existing home sales that we’ve seen since March of 2009. You’re hearing it on the builder calls that they need to decrease pricing. A lot of that is just you’re seeing a little pullback from outsized HPA. Where you’re seeing it, it’s more regional in nature. You’re seeing a lot in the South, particularly in the Southeast. Florida is pretty weak, but Florida was also up 60% since 2019. A lot of it is just you’re seeing it from short-term increases in inventory. So Texas, Florida, Georgia, you’re seeing in the Carolinas, a little in Colorado and Arizona. On the other side of that, the Northeast is very strong. New York, New Jersey up 6%, 7%. You’re seeing the Midwest is also strong. So I think shorter term you may see some pullback here. HPA may be flat and maybe negative throughout the year. But I think as Dave mentioned in the script, there are still a lot of longer-term reasons as to why we’re constructive on housing. Delinquencies are still relatively low. Mortgage credit availability is still tight. You’re seeing in terms of longer-term inventory, we think it’s short 3 million to 4 million units, and then when you think about borrower equity, the housing market is $55 trillion and there’s only $13 trillion of first lien debt. So I think longer term we feel constructive, but over the near term, just given the outsized HPA, you are going to see some pullback. In terms of what that means for the securitization market, we have seen delinquencies increase. We’ll relate that to the non-QM market. But I think in actual losses, they’ve been nominal, and it’s because of the equity that you see within these securitizations and within the PLS market. Those borrowers have anywhere from 25% to 30% equity. So I think that housing would really need to depreciate and decelerate for the PLS market to be impacted.

And Eric, your second part of the question was that related to if there’s a widening in resi credit spreads, will agency follow sympathy or is that it?

Yes, essentially. Yes, exactly.

Yes. So obviously there are two different markets and typically two different buckets across buyers of mortgage-backed securities. But yes, certainly to the extent resi credit does cheapen and it’s not really deemed a credit event, then it will be more competitive with agency. But generally, we think there’s appetite certainly for the resi credit sector and agency buyers. We’ll look at agency based on OAS volatility and all the metrics that you assess agency MBS relative to.

Yes. And Eric, I would just add in terms of if you want to think about the resiliency of the PLS market and what we have had recently seen. We were out with our non-QM six transaction; we went out with that market. We were out in the market on April 1. We ended up pricing that on April 7. During that time period, you saw the S&P 500 was down around 10%, and we were still able to price a transaction in the middle of this volatility with equity markets effectively catering, and doing it at a level that we still thought was relatively accretive to our cost of funds to warehouse. We had over 20 investors in that transaction. So I think the PLS market is different than where it was, call it, four to five years ago. If you asked us, would you be able to print a transaction in that type of volatility three, four, five years ago, I think the answer would have been no. But I think the growth of the market and the resiliency and the number of sponsors in terms of your investors has certainly increased.

Really helpful color from you guys as always. One more if I may just because there’s so much going on right now. I mean, lots of speculation around the GSEs getting released from conservatorship. We’re not looking we’re not overlooking any of the complexities with respect to a release. But if it eventually results in the GSEs having smaller or more nimble footprints in the mortgage market. I mean, first, what do you think that could mean for the level and volatility of MBS spreads, and what are the opportunities more broadly in the market that you think could be most attractive against that backdrop?

Well, certainly it’s a topic of a lot of attention right now. As we see it, conservatorship shouldn’t last forever. But what we’ve heard from policymakers is that to the extent that GSEs are privatized, it needs to be done thoughtfully and carefully. I think that the FHFA Director is aligned with the Treasury Secretary. Pulte said just the other day that first and foremost, the objective is to make sure that anything that’s done doesn’t affect the mortgage market in a negative way. So we’ve been encouraged with what we’ve heard thus far, and given the other priorities on the administration’s plate from trade to taxes to immigration, it’s further out the horizon that we think it will come to the forefront. Now, it relates to the GSEs’ footprint; under a scenario where they are no longer in conservatorship, yes, they could have a smaller footprint, which would generally be good for both our agency business and our residential credit business. I think we talked about on our last call that we would be more competitive from a resi credit standpoint with a lot of the products that the GSEs do currently guarantee. I think we noted that 20% of the existing wheelhouse for the GSEs is what’s considered non-core second homes, investor properties, and other types of loans, and we would welcome the opportunity to compete to acquire and securitize those products. A smaller footprint in agency only helps the supply and demand dynamics of the agency market. So generally, we feel pretty good about that.

Thank you, guys. Appreciate you.

Thank you, Eric.

Our next question will come from Jason Weaver with Jones Trading. Please go ahead.

Hey, good morning, guys. Thanks for taking my question. You mentioned the allocation shift towards agency with the distribution of more resi credit in the quarter, but can you talk about today where you see relative attractiveness in capital deployment?

Sure. Agency, as spreads have cheapened, some of that’s driven by volatility, but generally OASs are wider, and that’s where the marginal dollar is going given the returns in the agency market. We’ll still continue to focus on OBX loan acquisition to securitization because that’s a very good return for us, and we expect to grow the OBX platform. However, it could come at the cost of our third-party portfolio much like you saw in the first quarter where we grew OBX but reduced third-party securities primarily CRT as well as NPL and RPL. We’ll see how spreads evolve to determine that. But generally, agency is where the marginal dollar is going. As it relates to MSR, we have grown the portfolio nicely. We didn’t grow it much in the first quarter. The MSR portfolio for us is just kind of quietly laid in the grass and generated really strong returns because of the low note rate and low delinquency attributes of that portfolio, and it’s just been very stable for us. We’d like opportunities to continue to buy MSR, but those do tend to be episodic. We expect there to be a reasonable amount of supply coming, and growth will be dependent on pricing for the most part. But generally right now, the marginal dollars are going to be allocated to agency, but we’ll make sure we keep an overall level of diversification in the portfolio that has benefited the shareholder for the past couple of years. It’s worked out quite well, and we’ll be focused on it.

That’s helpful. Thank you. And as a follow-up, I wonder if you could talk about the home equity securitization transaction, what you learned from that and where you see investor demand evolving there?

Sure. Thanks, Jason. Yes, so that transaction I think actually went very well for us. We tightened that transaction I think close to 15 to 20 basis points relative to our IPTs. We priced the AAA asset at SOFR plus 160. The blended cost of funds there was about 85% advance rate, SOFR plus 170. When we look at that relative to our cost of funds within warehouse, it’s probably a 5% better advance rate and maybe call it 25-30 basis points better in terms of rate in terms of your cost of funds. Very accretive for us there. The type of HELOCs that we’re focused on are full documentation and bank quality credit, so we’re not participating in some of this alternative documentation that some of our peers and other competitors have been looking to do. I think for us it just shows that there is liquidity out there, and I think what is unique about HELOCs and the ability to sell HELOCs in the securitization market is it is a floating-rate product. So when you look at floating-rate assets within the PLS market, within the resi PLS market, really it’s only CRT, and then maybe there’s a small creation of floaters off prime jumbo deals. But there was a lot of demand from accounts that historically did not participate in our non-QM transactions with our fixed rate but did participate in the HELOC transaction because of the floating rate nature. So I think we feel very good about the deal and about future purchases and our ability to access securitization for term funding there.

Appreciate that, Mike. Thanks for all the color, guys.

Thank you, Jason.

Our next question will come from Trevor Cranston with Citizens JMP. Please go ahead.

Hey, thanks. On the agency portfolio, can you guys talk a little bit about what you’re seeing in terms of the supply-demand dynamic in the near term? And in particular, if you can maybe talk about what you’re seeing from foreign investors and what the outlook is for that segment of the market? Thanks.

Sure. Before this recent bout of volatility, there was pretty strong demand from fixed income funds because fixed income flows were very strong. There was very high CMO creation because demand for floaters, agency floaters, was very strong across a wide range of accounts. There was reasonable demand from banks. Banks added about $20 billion in the first quarter, and REITs also had a reasonable demand. As far as foreign accounts, we’ve seen a lot of demand for foreign accounts, but they’re usually from places like Canada and the U.K., which is mostly money manager demand. I don’t distinguish them any different from fixed income flows that you see in the U.S. What we have not seen in any reasonable size is demand from Asian accounts. We think that we need another 25 to 50 basis points of cuts in the front end, Fed cuts, before we see the Asian demand emerge. Now, does all of this tariff trade war and tariff change that equation? It’s not clear to me at this point.

Okay. Got it. That’s helpful. And then on the non-agency side of things, with all the rate and spread volatility we’ve seen in April, has that had any impact on sort of the pace of new loan acquisitions in that business? And how should we think about that for the early part of the second quarter? Thanks.

Yes. Thanks, Trevor. Yes, it’s a really good question. I would say it has, and really what we’re doing is when you experience a time like this where you’re seeing volatility and you’re seeing increases in spreads, what we will do is we’ll build in a higher margin, a higher gross margin relative to what we have been doing historically. So I think in times like this, it’s prudent for us. One of the reasons why the ROEs of the business increased in terms of on our investor deck is because we need to make sure that we have enough buffer for our ability to execute these transactions. I think it’s also a little bit in terms of building a little bit more margin just given our caution on the consumer as well. So I would say our lock volume is off, but it’s not off significantly. We’re still a platform that has the ability where there’s some inelasticity in terms of our pricing, but I would say yes, have a little bit more of a defensive posture given securitization spreads and given the volatility that we’re seeing, and we do that through our margin, and that’s a pretty reactive function.

Okay. Makes sense. Thank you guys.

Thank you, Trevor.

With no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to David Finkelstein, Chief Executive Officer for any closing remarks.

Thank you, Sean. And thank you everybody for joining us today. Have a good rest of the spring, and we’ll talk to you soon.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.