Earnings Call Transcript - NLY Q3 2024

Sean Kensil, Investor Relations

Good morning, and welcome to the third quarter 2024 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 third quarter 2024 investor presentation and third quarter 2024 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 Chief Investment Officer; Serena Wolfe, Chief Financial Officer; Mike Fania, Deputy 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.

David Finkelstein, CEO and Chief Investment Officer

Thank you, Sean. Good morning, everyone. Thank you all for joining us for our third quarter earnings call. Today, I'll briefly review the macro and market environment along with our performance during the quarter. Then I'll provide an update on each of our three businesses and end with our outlook. Serena will then discuss our financials, after which we'll open the call up to Q&A. Now starting with the macro landscape. Financial markets benefited from both the Federal Reserve beginning the long anticipated cutting cycle as well as the continued robust pace of growth exhibited by the U.S. economy. With respect to the Fed, as all are aware, policy rates were lowered by 50 basis points in September, ending 16 months of over 5 percent short-term interest rates, and policymakers signaled that they will continue to ease over time as current rates remain restrictive, with the pace and extent of easing dependent on economic data. The change in monetary policy was driven both by the labor market moving into better balance as hiring slowed over the summer as well as the continued normalization of inflation, with core PCE likely to run only slightly above 2 percent annualized for the third quarter. The market's pricing of additional rate cuts has led to a steeper yield curve, increasing the attractiveness of fixed income assets, particularly in agency MBS. Interest rate volatility declined over the quarter to the lowest level seen since the onset of the March '23 regional banking crisis, though it remains meaningfully above pre-COVID average levels. Meanwhile, economic growth has been resilient with estimates for Q3 GDP roughly in line with the 3 percent annualized expansion in the second quarter. These developments have been supportive of our diversified housing model as seen in the performance we delivered in the quarter. We generated an economic return of 4.9 percent for Q3 and 10.5 percent year-to-date, and our earnings available for distribution again exceeded our dividend. Economic leverage ticked down slightly to 5.7 turns, which we anticipate maintaining over the near term. Our performance and the constructive backdrop for Annaly's investment strategies allowed us to raise $1.2 billion of accretive common equity since the beginning of the third quarter through our ATM program. The environment to deploy capital remains attractive, and the market value of all three of our business lines increased quarter-over-quarter. Notably, roughly 40 percent of the proceeds raised were from negotiated sales following investor reverse inquiries, underscoring the value proposition and associated institutional demand. Now turning to our portfolios, beginning with Agency MBS. In light of the capital raise, our agency portfolio grew by just over $4 billion notional, with the remaining increase in market value attributable to price appreciation. As mortgage rates declined over the quarter, prepayment concerns weighed on generic higher coupons, while lower coupons and specified pools with prepayment protection outperformed. This is less of a concern for us as the focus of our methodical migration up in coupon over the past two years has been on high-quality specified pools. For example, our sixes and higher represent roughly a quarter of our portfolio. Within these coupons, only a small fraction of our pools are backed by generic collateral, and approximately 70 percent have what we would characterize as high-quality prepayment protection. The benefits of our collateral selection were best seen in the latest prepayment report. As the third quarter unfolded and higher coupons lagged in the rally, particularly in September, we did rotate an additional 5 percent of the portfolio from intermediate coupons to higher coupon collateral on a relative value basis. In our hedge portfolio, we maintained conservative interest rate exposure throughout the quarter while benefiting from a steepening bias. As rates rallied, we proactively managed our rate exposure as mortgage durations contracted, but ended the quarter with minimal duration, thus helping prepare us for the recent sell-off as the fourth quarter has unfolded. Shifting to residential credit, the portfolio ended Q3 at $6.5 billion in economic market value, with $2.3 billion of dedicated capital representing 18 percent of the firm's equity. The market value of the portfolio increased by $535 million quarter-over-quarter, driven by the continued growth of our correspondent platform with our whole loan and retained OBX securitization portfolio increasing by $640 million. Residential credit spreads were range-bound during the quarter, with new issue AAA non-QM securities trading in the 10 basis point range providing a supportive backdrop for our OBX securitization platform. Capitalizing on the firmness in credit spreads, we priced six securitizations totaling $3.3 billion in UPB since the beginning of the third quarter and have now priced 18 securitizations totaling $9.4 billion in 2024, maintaining Onslow Bay, the largest non-bank sponsor in the residential credit market and second largest overall. Year-to-date, these transactions have led to the organic creation of over $1.3 billion in market value of retained OBX securities across Annaly and our joint venture with projected ROEs on deployed capital of 12 to 15 percent. Our correspondent channel produced record volumes again in Q3 across both locks and fundings at $4.4 billion and $2.9 billion, respectively. We have now achieved 11 consecutive months of expanded credit lock volume in excess of $1 billion per month. The momentum of the channel continued into Q4 with a current lock pipeline of $2.2 billion featuring strong credit characteristics and limited layer risk, representing a 754 weighted average FICO and a 68 percent LTV. Our disciplined focus on underwriting sound credit risk and proactive asset management has led to Onslow Bay's non-QM securitizations having the lowest delinquencies across the top 10 issuers in the market, and while the overall serious delinquency rate on the entire GAAP portfolio remains nominal at under 1.4 percent, our residential business is very well positioned given the optionality of our ever-growing correspondent channel and our ability to manufacture high-yielding assets across all spread environments. Moving to the MSR business, our portfolio ended the third quarter at $2.8 billion in market value, utilizing $2.5 billion in equity representing 21 percent of the firm's capital. Our MSR holdings, including unsettled acquisitions, were up modestly as we committed to purchase one bulk transaction comprising $125 million in market value which we expect to close before year-end. Notwithstanding the 80 basis point decline in mortgage rates on the quarter, the valuation on our MSR portfolio decreased minimally to a 5.6 percent multiple, highlighting the durability of a portfolio that is 300 basis points out of the money. Fundamental performance of the portfolio continues to be strong with a three-month CPR of 3.9 percent, and serious delinquencies are a mere 45 basis points. Deposit income remains elevated given the shape of the curve, and increased competition in the subservicing market should benefit financial participants like Annaly. On the strategic front related to MSR, Annaly's long history of formulating value-add partnerships was again on display this quarter, as we announced a subservicing partnership with Rocket Mortgage in early October. Annaly's size and stability of our capital helped develop this relationship, and we're pleased to be Rocket's first agency MSR subservicing partner. Rocket is expected to begin servicing loans for us as early as December. This collaboration should allow Annaly to benefit from Rocket's best-in-class recapture capabilities, and we expect it to increase our competitiveness in purchasing new MSR. Similar to our existing subservicing agreements, a Rocket agreement allows Annaly to participate in the gain on sale of the loan refinanced, helping preserve and protect our portfolio. This new partnership, in conjunction with our existing recapture agreements, should allow Annaly to leverage best-in-class industry partners without taking on the operational leverage and earnings cyclicality of an originator. Lastly, as it relates to our outlook, we remain optimistic that our business model is well positioned with the Fed's cutting cycle now officially underway and the potential realization of a soft landing. However, we remain disciplined in our management of the portfolio concerning leverage, liquidity, and duration exposure given the Fed's meeting-to-meeting dependence and the upcoming presidential election. We remain in a very attractive environment for Agency MBS given elevated investor inflows, a steeper yield curve, and an improving technical backdrop. Our Onslow Bay home loan correspondent channel has continued to bring in record volume and allows us to create proprietary assets not available to the broader market. Our ability to create industry-leading partnerships within MSR and our low gross weighted average cost of capital portfolio have created differentiated advantages. Collectively, we have all the pieces in place across our residential housing finance businesses to deliver stable returns, as demonstrated by our 25 percent economic return realized over the past two years. And now with that, I'll hand it over to Serena to discuss the financials.

Serena Wolfe, CFO

Thank you, David. Today, I will provide brief financial highlights for the third quarter ended September 30, 2024. Consistent with prior quarters, while our earnings release disclosures GAAP and non-GAAP earnings metrics, my comments will focus on our non-GAAP Earnings Available for Distribution (EAD) and related key performance metrics, which exclude PAA. As of September 30, 2024, our book value per share increased from $19.25 in the prior quarter to $19.54. Strong performance across all our businesses contributed to the realization of a 4.9 percent economic return, including our dividend of $0.65 for Q3. When added to our first half performance, we have generated an economic return of 10.5 percent year-to-date for 2024. Lower interest rate volatility during the quarter combined with modestly lower treasury rates resulted in gains on our agency MBS portfolio of $4.30 per share. Our residential portfolio continued to add to book value, contributing $0.24 per share, while lower rates adversely impacted MSR values for the quarter by $0.06. Together with the agency returns, these portfolio gains outpaced the losses on our hedging portfolio of $4.23 per share. Earnings available for distribution per share exceeded our dividend, though decreased modestly in the third quarter compared to Q2 2024, mainly due to an increase in share count and slightly higher preferred dividend expense due to our Series I preferred changing from fixed to floating as of June 30, 2024. That said, earnings available for distribution on an absolute basis increased due to higher coupon income related to continued rotation up in coupon on the agency portfolio and additional yield provided by the securitization of the assets sourced through the Onslow Bay correspondent channel. Consequently, average asset yields excluding PAA increased by 11 basis points to 5.25 percent in Q3. Increased coupon income was partly offset by a marginal increase of 3 basis points in our economic cost of funds for the quarter. Average repo rates declined 3 basis points during the quarter but were offset by higher securitized debt expense from the six securitizations that closed during the quarter. Our swap interest component benefited EAD as we actively managed the hedge book throughout the quarter during the rates market rally. Based on the earlier factors, our net interest spread excluding PAA improved by 8 basis points to 1.32 percent. Our net interest margin excluding PAA declined by 6 basis points to 1.52 percent, primarily due to nuances in the calculation of NIM that are not apparent in NIM, for example, the impact of the higher denominator of average interest-earning assets in TBA notional, and not an indicator of a decline in income from interest-earning assets. Turning to details on financing, we continue to see strong demand for funding for our agency and non-agency security portfolios. Our repo strategy remains consistent with prior quarters, with the book position around Fed meeting dates, where we look to take advantage of any future rate cuts. As a result, our Q3 reported weighted average repo days were 34 days, down two days compared to Q2. Today, we have maintained our disciplined approach to diversifying our funding options in our credit businesses. We added $560 million of warehouse capacity for residential credit, which brings our total warehouse capacity across both credit businesses to $4.7 billion, with a utilization rate of 40 percent as of September 30. Post-quarter end, we implemented an additional MSR warehouse facility for $300 million, adding to our substantial availability. Annaly's unencumbered assets increased to $6.5 billion in the third quarter compared to $5.4 billion in the second quarter, including cash and unencumbered Agency MBS of $4.7 billion. In addition, we have approximately $900 million in fair value of MSR that has been placed to committed warehouse facilities that remain unwon and can be quickly converted to cash, subject to market advanced rates. We have approximately $7.4 billion of assets available for financing, up $1.1 billion compared to last quarter. Finally, turning to expenses, our efficiency ratios improved during the quarter due to lower other G&A costs and higher average equity balances. This resulted in our OpEx to equity ratio decreasing 10 basis points to 1.48 percent for the quarter. On a year-to-date basis, our OpEx to equity ratio remains in line with historical amounts at 1.46 percent. That concludes our prepared remarks. We will now open the line for questions. Thank you, operator.

Richard Shane, Analyst

Thanks, everybody, for taking my question this morning. Look, the history of mortgage REIT suggests that the known risks are pretty manageable. It's the unexpected risks. It's when you think rates are going up and they go down. It's when you think rates are going down, that they go up, that you experience the greatest turmoil. The fourth quarter has started with base rates going up, spreads widening, and higher volatility. Can you tell us a little bit about how you're managing that, particularly in light of political uncertainty over the next two and a half weeks?

David Finkelstein, CEO and Chief Investment Officer

Rick, thank you. That's actually a good question to kick off the call here. We came into the quarter with virtually no rate risk, as I mentioned in our prepared remarks. If you look at our rate shots, that reinforces that notion. Our leverage was down heading into the quarter. At the onset of the quarter, we got payrolls, which were certainly stronger than expected, and we proactively managed the portfolio selling roughly $2 billion in Agency MBS, given the pickup in volatility and higher rates. We've actively managed the rate risk as the market has sold off. We probably sold a little over $3 billion in 10-year equivalents over the course of the month of October. Nevertheless, the portfolio has extended. We're operating today at approximately half a year in duration, which we're perfectly comfortable with here, notwithstanding the election uncertainty. When we take a step back and look at the rates market, we're sitting here today with 10-year real yields approaching 2 percent, nominal yields on the 10-year at 4.20 percent, which is 135 basis points or thereabouts above the rest of the G7, which looks reasonable. OIS at 3.70 percent as a proxy for future short rates looks perfectly reasonable to us. With the 5-year note at 4 percent or just above 4 percent, it looks fair. The market is pricing a terminal funds rate 50 basis points higher than where the Fed is at, which is a big reversal from where we were before, and that's encouraging. We're respectful of the data, which has been quite strong, and we understand the volatility that's materialized. As you point out, the election is front and center. It warrants maintaining a very conservative position. Given that we sold mortgages, our leverage position has remained stable. As we go through the next couple of weeks, we're going to be very disciplined about managing our rate and basis risk here because this is a big unknown. If we do get a red wave, the points I made about market pricing may look a little too optimistic, and we'll see where that plays out. For now, we're keeping things close to home. We like our basis exposure, and we're going to manage our rate risk. Does that help?

Bose George, Analyst

Can I start just by asking for an update on book value?

David Finkelstein, CEO and Chief Investment Officer

Sure, Bose. Through Friday, we were off just a little over 1 percent in book value. That's pre-dividend accrual. Considering the dividend accrual, it's roughly 0.5 percent off.

Bose George, Analyst

Okay, great. In terms of dividend, you've commented that you're comfortable through 2024. Are you ready to discuss the outlook into 2025 and how you feel about the dividend?

David Finkelstein, CEO and Chief Investment Officer

Well, as we sit here today, we feel good about the dividend. We're in a safe place. We expect to modestly earn a little bit more this quarter, the fourth quarter, than in Q3. We expect our NIM to increase modestly. However, we need to see how things play out. We need to understand the Fed's direction and the market's direction before we can really understand where the dividend is going. There's been dividend increases over the last few months in the sector, but a lot of that came from very low levels to get to not so low levels, and some others are essentially approaching or contextual with our dividend currently. About a 13.5 percent roughly dividend yield on book, I think it's around 13.3 percent. It's a solid return. We're much more focused on economic return and ensuring that we can deliver the dividend. As the market and policy play out heading into 2025, we recognize that the Fed's posture provides a tailwind to many aspects of our business and certainly EAD. We're hopeful that we do get the cuts that are priced in, and we'll see how it goes.

Doug Harter, Analyst

Can you talk about how you're thinking about equity allocation and capital allocation to the three businesses, and how different rate scenarios might change your appetite for that capital allocation?

David Finkelstein, CEO and Chief Investment Officer

Sure. As I noted in my prepared remarks, all three of our businesses are growing. We can generate good returns across the three businesses. However, at this point in the cycle, given the beginning of a sequence of rate cuts, agency looks the best. We understand volatility is high, but spreads are considerate of that. The technicals in the agency market have become much more supportive. At the margin, agency looks a little bit better, which can be seen in our capital allocation at quarter end as we raised capital, and the vast majority went into the agency sector. We do want to grow the residential credit business higher, certainly. We'll have to see how originations materialize. Looking at the returns in that business through securitization from loans acquired through our correspondent channel, we want to keep growing that. We expect to do so, but we have to be responsible with respect to credit at this point in the cycle. We feel like we can keep that engine going. In MSR, that tends to be episodic. We would again like to grow it, and we'll see the extent to which packages come to market, and we'll be aggressive as that materializes. But at the margin, agency is where the marginal dollar is going, and we'll keep it balanced overall.

Doug Harter, Analyst

With that comment about all three businesses requiring investment in mind, how do you think about continued capital raising in this environment?

David Finkelstein, CEO and Chief Investment Officer

As we've said, we'll only raise capital if it's accretive and if assets are priced appropriately. To the extent that those stars align, we'll consider it. However, we have ample liquidity. Our liquid box is, as Serena mentioned, $4.7 billion in Agency MBS cash. We don't need to raise capital. A lot of the justification in our minds for capital raise was accretive assets but also to generate more scale for these businesses without impacting our operating expense ratio. We feel we have greater resources now to make investments in technology, broadening the correspondent channel, and other effort areas. We feel good about capital raising because we'd characterize it as offensive scale. We're clearly fully skilled across our businesses, and we are the most efficient for anyone operating with this broad of a business mix, running three businesses is about 150 basis points of OpEx to equity. However, it does help to raise equity so we can make the appropriate investments that will ultimately benefit the shareholder over the long term. That's just our thought process around capital raising. We don't need to, but if the market tells us to do so, we will consider it.

Jason Weaver, Analyst

David, maybe Mike can provide some input too. I was wondering if you're seeing anything in the securitization data out there that might indicate any early stress, like first-time delinquencies, slow pays, grace period maximization?

Mike Fania, Deputy Chief Investment Officer and Head of Residential Credit

Yes, Jason, thanks for the question. In terms of commentary around the consumer, it's more focused on the lower-end consumer, the low to medium-income borrower. That's not consistent with the type of borrower that we're lending to. The average loan size in the non-QM 15 transaction that we priced was $495,000 on a 68 LTV, representing a $730,000 property value. Our average borrower earns about $250,000 per year. So, considering the type of borrowers we're lending to, it's very sophisticated, self-employed borrowers, primarily professional real estate investors. We are not necessarily seeing that stress that other products are experiencing like credit cards or subprime auto. As David mentioned earlier in the call, the serious delinquency rate is 137 basis points for our entire portfolio. For the non-DDSCR part of the portfolio, it's approximately 2 percent. We feel very good about the credit we're originating and the borrowers we're targeting specifically.

Jason Weaver, Analyst

That's helpful. I was wondering more from a macro sense if there's any persistence into that higher level of credit quality, but it sounds like there's not. Also, about your Rocket partnership, you had mentioned seeing greater competition among sub-servicers. Should we interpret that as an expectation for better pricing on subservicing expense or any more favorable changes in economics for Annaly when that product comes online?

Ken Adler, Head of Mortgage Servicing Rights

Yes, Jason, thanks for the question. In short, absolutely. As there has been substantial MSR trading in the last few years, the amount going to owners who service their own loans has been material. We've seen a contraction in the share of overall mortgage servicing rights handled by sub-servicers, which has created a lot of competition in the market. We're thus seeing lower pricing and better economics.

Eric Hagen, Analyst

When we look historically at the portfolio, book value has been consumed by a higher bond premium. At one point, the premium in the agency portfolio was like a third of book value, versus now, the premium risk is a lot more dialed down, and the prepayment exposure might be characterized differently on the balance sheet. Do you believe that drives your philosophy around leverage and capital allocation compared to how you've managed in the past and how we should expect you to manage going forward?

David Finkelstein, CEO and Chief Investment Officer

Absolutely, the convexity profile of the agency portfolio is going to inform how we think about leverage. The agency average coupon is currently about 4.95 percent, so we're below par. We have methodically moved up in coupon as I talked about. The convexity exposure has increased and is now slightly off, or it is now slightly better with the sell-off, but nevertheless, it is a consideration. Serena, feel free to elaborate on how we think about it from the overall management of the portfolio standpoint.

Serena Wolfe, CFO

To a large extent, we have gone up in coupon, but we have stayed in high-quality specified pools. As David alluded to, about 70 percent of our portfolio is in high-quality pools. We don't have the same amount of duration drift as you would if you were in lower quality generic pools. Given that the dollar prices are generally higher for the quarter as rates rally, and the durations are no more, the hedging costs—or the amount of hedges you need against them—are lower, creating more liquidity.

Eric Hagen, Analyst

That's helpful. Yes, that was a helpful explanation. Returning to non-QM a bit, you guys have been active there. How do you feel that portfolio might benefit from the Fed cutting rates? Do you envision lower rates catalyzing originators to create more non-QM?

David Finkelstein, CEO and Chief Investment Officer

We certainly hope so. We've been pleased with the growth of the correspondent channel as discussed in the prepared remarks. Presumably, if you get lower rates, it will spur more housing activity and certainly should benefit non-QM. Often, in a lower rate environment, the originators are more focused on the agency market. The market appears to be in a healthy place and could grow as rates do come down.

Mike Fania, Deputy Chief Investment Officer and Head of Residential Credit

Yes, Eric, this is Mike. About 85 percent of the portfolio is fixed rate. We do evaluate that portfolio on a hedged basis. We're hedging that on a macro level with the MSR and agency portfolios as well. The majority of analysts view non-QM in terms of spreads rather than yield. The extent that rates rally and there's realization of these Fed cuts, it will likely increase origination volumes and benefit non-QM securitization volumes. From a spread perspective, we do anticipate the spreads tightening once we get past some of these events, specifically the election. So, we believe we're in a conducive environment as the Fed eases, as predicted, and as rates begin to rally.

Harsh Hemnani, Analyst

Thank you. In light of the Rocket mortgage partnership and perhaps the desire to grow the MSR book into the end of the year, could you comment on how you're viewing the relative value between higher coupon MSRs with recapture opportunities versus lower coupon MSRs currently in your portfolio?

David Finkelstein, CEO and Chief Investment Officer

Certainly, we capture recapture opportunities as part of the valuation. With the Rocket partnership, that's just another addition to our portfolio of recapture and subservicing partners. We're excited about the opportunity, given their leading customer retention rates and customer satisfaction. Each of our partners has differing strategies and approaches to subservicing and recapture. They will be part of our portfolio, and we're prepared to opportunistically bid on higher note rates or lower note rates, and building on our infrastructure adds to this capacity.

Jason Stewart, Analyst

I wanted to pull together the concept of offensive capital raising, leverage, and the election. If you could, David, put a pin in whether that's a signpost leading you to take leverage up? Or are there other issues you're looking at, and if you could pull those three together for us?

David Finkelstein, CEO and Chief Investment Officer

As it relates to raising capital, we believe that's a better alternative than taking leverage up, in our minds. If you really like Agency MBS, you don't need to raise capital; you raise leverage. While we do like Agency MBS, it was more advantageous to raise capital than to lever up because of all the events on the horizon. If we fast forward a couple of weeks and we get an outcome on the election imminently after Tuesday, two weeks from now, once the market calms down, we could certainly take leverage up because mortgages have cheapened about 4 to 5 basis points thus far in the quarter. They look perfectly reasonable. However, volatility is high, and we need to be respectful of it. We don't need to take leverage up. We're certainly earning an adequate return, but if we feel there's a tactical opportunity to do so, we certainly have the capacity to do that, but we have to see how things play out.

Don Fandetti, Analyst

Can you talk a little bit about your view on agency MBS spreads? I think they're still a little wide versus historical averages, and the bull case is perhaps that the banks come in and you could see some tightening. Do you agree with that, or do you think we're more range-bound for a while?

Sean Kensil, Investor Relations

Stepping back, the big picture is that monetary policy that has been restrictive for a while is now normalizing along with labor markets and inflation. From a fundamental perspective, you're likely to see the yield curve steepen and interest rate volatility decline, all positive for Agency MBS. The supply-demand technicals are better today than they have been since 2022. Banks, which shed about $200 billion in 2023, have recently added modestly to MBS this year. Looking forward, if the Fed's cutting cycle continues as we expect, or as the Fed expects, we should see an increase in bank demand and also see foreign buyers coming into the Agency MBS market, which also supports the technicals for the Agency MBS market. We’ve been trading in the 115 to 145 basis point range for the current coupon spread to blended treasury curve over the last four to five months. As we get past the election, I believe we could see that spread tighten to the 110 to 130 basis point range. We don't expect that we'll go back to the pre-COVID spreads, around 65 to 85 basis points when the Fed was actively involved, but it is reasonable to think the spreads could tighten by 10 to 15 basis points from where we are today.

Trevor Cranston, Analyst

There was some news about a large asset manager making a move to get involved in the non-QM space. Could you talk about what you're seeing in terms of new participants coming into the market and what that might mean for the competitive landscape and overall economics in the non-QM space?

Mike Fania, Deputy Chief Investment Officer and Head of Residential Credit

We think it's a bit of the opposite; entities with fully scaled platforms and significant resources are in a really good spot right now. When considering October, we've already funded $9 billion in loans year-to-date. It's challenging to pin down actual origination volume within non-QM and DSCR, but we estimate we're anywhere from a 10 to 15 percent market share. Our market share is continuing to increase, with roughly 15 correspondents signed up each quarter. Additionally, we've started to roll out additional originator tools and the capability to underwrite bank statement income. Much of the capital raise that David referenced goes toward improving our loan funding velocity. We feel we are ahead of the game. We've had a corresponding channel since 2021 and have been buying non-QM loans since 2016 or 2017. We're confident about our stance.

David Finkelstein, CEO and Chief Investment Officer

There are barriers to entry in this space. We've been consistent and a durable partner to many in the originator community through COVID. We've funded everything we committed to in 2022. As capital market volatility hit, originators were in a precarious position, and we were there for them. As a result, we've established deep relationships in the originator community. Our infrastructure is strong, providing great service to our partners, and we have the distribution through our securitization brand, leading to very competitive spreads. Consequently, we offer better pricing and durable commitments to the originator community. We feel we're in a good position. Thank you, everyone, for joining us today. We'll talk to you soon.

Operator, Operator

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