Good afternoon and welcome to the Redwood Trust, Inc. First Quarter 2024 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Kaitlyn Mauritz, Redwood's Senior Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Hello, everyone, and thank you for joining us today for our first quarter 2024 earnings conference call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, 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. We encourage you to read the company's annual report on 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. A reconciliation between GAAP and non-GAAP financial measures is provided in our first quarter Redwood Review, which is available on our website, redwoodtrust.com. Also note that the content of today's conference call contains 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. I'll now turn the call over to Chris for opening remarks.

Thanks, Kaitlyn. In February, we delivered our fourth quarter commentary where our focus was on the actions we took in 2023 to lay the groundwork for a long-term positioning. These actions occurred in the midst of one of the worst housing finance markets in decades. More recently, at our March Investor Day, we updated the market on our progress at that point in the first quarter, including the announcement of a transformational new capital partnership. With the first quarter now behind us, we're pleased to be building on the foundation we established, generating significant increases in net interest income, GAAP earnings, EAD earnings, and GAAP book value. As we'll discuss in today's call, the first quarter is emblematic of our long-term strategic vision, demonstrating the potential of our platform to deliver value regardless of the interest rate environment. Our business has been fueled by the strong capital position we've amassed in recent quarters, allowing us to form generational partnerships with banks and other institutions who now lack portfolio capacity for residential mortgages. With April now behind us, we continue to gain market share, making our trajectory worthy of a second look by macro traders who've been otherwise consumed by the gyrations of the 10-year treasury. Our residential consumer locked volume was up 50% quarter-over-quarter, eclipsing our highest level since the beginning of this Fed tightening cycle. Our residential investor business has also found momentum on the heels of the $750 million strategic partnership that we announced with the Canada Pension Plan Investment Board last month. As a reminder, this partnership includes a $500 million joint venture aimed at purchasing up to $4 billion of residential investor loans in the quarters ahead. However, the partnership with the Canada Pension Plan Investment Board is much more than a traditional joint venture. It also provides us with significant corporate liquidity to a $250 million secured revolving facility. Through today, we've already drawn $100 million on this facility, as it's well-suited to address the anticipated growth trajectory for our residential consumer business. Leveraging this partnership has reduced our need for additional equity capital thus far in 2024. An extended period of higher rates has also driven the expansion of our home equity product offerings. We closed our first directly originated home equity investment option through our Aspire platform in the first quarter and began the process of rolling out traditional second-lien mortgage products through our seller base. As we have for some of our other products, we expect to pursue dedicated capital partners for this asset class in the quarters ahead and scale these offerings over time. Turning to our investment portfolio, fundamentals remain strong. The vast majority of our investments backed by single-family housing credit for homeowners continue to build equity. In particular, we've made meaningful progress within our residential investor portfolio, where we saw a sharp reduction in credit-related charges for multifamily bridge loans relative to recent quarters. This eventual flattening was intuitive to us as we made important shifts in our product focus as rates began to rise in late 2022. We've steered clear of commercial asset classes now experiencing significant stress. Collectively, our progress in the first quarter reflects the unique value that our franchise brings to homebuyers, housing investors, banks, independent mortgage companies, and private credit institutions who have come to rely upon Redwood. Our focus will now be on scaling our platforms and growing wallet share at a time when few are capable of doing so. While our business stands to significantly benefit from an eventual Fed easing, the first quarter was evidence that we are well-positioned for growth in an extended, higher-for-longer environment as well. As more banks begin to publicly message their early compliance with the anticipated Baseline Game Rules, this serves as an important reminder of the growing need for Redwood's products and services. And with that, I will turn the call over to Dash.

Thank you, Chris. I'll cover the performance of our operating platforms and investment portfolio before handing it over to Brooke to discuss our overall financial performance. As Chris emphasized, the first quarter of 2024 validated the unique opportunity for our residential consumer business to drive volumes and profitability amidst continued pressure on broader industry volumes. We locked $1.8 billion of loans during the quarter, a 53% increase from the fourth quarter. Gross margins were 107 basis points above our historical target range on the strength of three accretive securitizations totaling $1.2 billion, a monthly cadence that drives efficient capital turnover at increased volumes. Credit spreads have remained constructive for issuance. Earlier this month, we priced our fourth securitization of 2024 at our tightest spreads of the year with robust investor demand. This strength of execution pairs well with our longstanding operational advantages, and our first quarter volume mix reflected increased wallet share across our network of loan sellers. Our lock volume with banks rose even as overall bank production fell. Meanwhile, our volumes doubled quarter-on-quarter with independent mortgage bankers or IMBs. These partners remain a key driver of non-agency volumes in the market and represent a longstanding strategic moat for the business, critical to us continuing to drive market share higher. We also saw increased momentum from bulk acquisitions, which more than doubled relative to the fourth quarter. This development was something we have been planning for as our enhanced capital position allows us to continue to be more aggressive in this channel and pursue larger season portfolios that complement on-the-run production. Importantly, momentum in the business continues to grow, notwithstanding the 45 basis point backup in the 10-year treasury yield we have seen in April alone. Lock volumes in April, once again balanced across our seller base and between bulk and flow transactions, outpaced our average Q1 monthly run rate by 25%. Turning to our residential investor platform, our priorities remain prudently growing top-line revenue, proactively managing credit risk, and returning the business to sustained operating profitability. For the first quarter, we funded $326 million of loans, effectively flat from fourth quarter volumes. Revenue margins and segment profitability improved quarter-over-quarter driven by tightening securitization spreads. Volume trends picked up later in the first quarter, and given recent volatility in benchmark interest rates, we built important momentum in less rate-sensitive products, including single-asset bridge or SAB loans. We entered the second quarter with a growing pipeline as more borrowers come to accept the current rate environment and lock in coupons. Funding volume in April is trending 15% higher than Q1's average monthly run rate, driven in part by the largest month for SAB production since the acquisition of the Riverbend platform in mid-2022. Distribution channels for our residential investor loans remain open and are benefiting from a firmer overall market tone. First quarter bridge production was largely distributed into our Oaktree joint venture and our three revolving bridge securitizations. With the CPP partnership in place, we are finalizing warehouse financing for the joint venture and expect to begin selling both bridge and term loan production to this new vehicle towards the end of the second quarter. Delinquencies in our term and bridge portfolios remain stable quarter-over-quarter, and we have continued to emphasize disciplined underwriting and product selection. As of March 31st, virtually all of our 90-plus-day delinquencies in the bridge portfolio were for loans originated in the third quarter of 2022 or earlier, one of the key junctures at which we evolved our origination approach. Since late 2022, our residential investor production mix has remained predominantly focused on single-family loans, where performance has remained resilient. This trend aligns with what we are seeing in our broader investment portfolio, particularly in our re-performing loan, or RPL book, where delinquencies have hit three-year lows, partly on the strength of steadily improving LTVs. Additionally, delinquencies within our securitized Sequoia portfolio remain low at just 20 basis points. As a reminder, our investment portfolio sits with $2.47 per share of discount, much of which we continue to believe is recoverable with both continued performance of the underlying investments and further firming of risk sentiment, which could reverse unrealized losses from spread widening taken in 2023. During the first quarter, we found attractive pockets of relative value, deploying approximately $115 million of capital into new investments at an estimated mid-teens blended return. This represented our most active investment quarter since the third quarter of 2022, and we anticipate continuing to deploy excess capital accretively in the coming quarters, both in support of our operating platforms and into opportunistic third party investments. And with that, I will turn the call over to Brooke to cover our financial results.

Thank you, Dash. We reported GAAP earnings of $29 million for the first quarter or $0.21 per share compared to $19 million or $0.15 per share in the fourth quarter, resulting in a first quarter GAAP ROE of 10%. We reported book value per share of $8.78, a 1.6% increase from $8.64 on December 31st. GAAP earnings exceeded our Q1 common dividend of $0.16 per share, and we delivered a quarterly total economic return of 3.5% for the quarter. The improvement in GAAP earnings was driven by higher net income from both of our mortgage banking platforms as well as positive mark-to-market changes in the investment portfolio. Net interest income increased 20% or $4 million in Q1 driven by $200 million of accretive capital deployment over the last two quarters and improved interest income on bridge loans. This positively impacted earnings available for distribution for EAD, which was $11 million or $0.08 per share in the first quarter compared to $7 million or $0.05 in the fourth quarter. As has been mentioned, we grew box volume and maintained healthy margins above our target gain-on-sale range in our residential consumer mortgage banking segment, ultimately delivering a 17% GAAP return, up from 10% in the prior quarter. We have demonstrated our operating leverage as we scale the platform, driving down our cost per loan to 37 basis points during the quarter, approaching our run rate target of 30 to 35 basis points in line with historical ranges for the business. Contributions from our residential investor mortgage banking segment also improved quarter-over-quarter, even with slightly lower volumes due to improved securitization economics from spread tightening. On our last quarter's earnings call, we guided the market to another 5% to 10% reduction in G&A from 2023 levels. We made substantial progress towards this goal in the first quarter, following recent expense reduction initiatives completed in late March. Our first quarter G&A expenses include $3 million of costs related to these actions. In aggregate, we expect our go-forward G&A to decrease by approximately $2 million quarterly or $8 million on an annualized basis. Our strong liquidity position was further bolstered by two important new sources of corporate capital. The first was the $250 million secured facility, which was part of the CPP partnership. The second was the $60 million inaugural senior unsecured debt offering in January. As previously described, the CPP financing facility is secured by unencumbered assets as well as by equity in certain of our operating subsidiaries. The facility is structured with revolving capacity, which makes it well suited to address the anticipated growth trajectory of our residential consumer business. Subsequent to the quarter-end, we completed an initial draw of $100 million and have begun to deploy the capital in line with the mid-teen return targets Dash mentioned. We reported total recourse leverage of 1.9 times for the first quarter, a decrease from 2.2 times from the fourth quarter as a result of lower recourse debt at our operating businesses as we successfully completed three Sequoia securitizations during the quarter and reduced our convertible debt by approximately $31 million. Cash and cash equivalents at quarter-end were $275 million, compared to $293 million at year-end, which is notable given the $146 million of capital deployed during the quarter inclusive of the corporate debt repurchases. During our Investor Day in March, we took the opportunity to walk the market through our path to higher earnings. Our performance during the quarter serves as a testament to that goal, and we expect to continue to build on the net interest income we generated in the first quarter. We're committed to growing market share and deploying capital effectively to boost earnings in line with the current dividend level over the remainder of this year. And with that, operator, we will open the line for questions.

Our first question comes from Rick Shane with JPMorgan.

When we compare the bridge loan maturity on schedule from the fourth quarter to the first quarter, it looks to me like about $165 million or $170 million of the pending first quarter maturities have been rolled in or extended into the second and third quarters. Is that about right?

And that’s right. We had about $155 million of extensions on the quarter that were anywhere between about 6 months to 12 months, I think around 8 months on average.

And last year you guys provided a pie chart showing the outcomes of 2023 maturities and broke out what percentage were extended. What percentage were extended with additional commitments on that $155 million? Was a high percentage extended with additional equity commitments, or how should we think about that?

It was more, Rick. You know a lot of those were shorter term in nature. So we don’t extend alone without; #1, procuring economics, and #2, ensuring that our equity position remains sufficient. So in certain of those cases, yes, we did ask that bar to re-up, but in many cases where we feel like we have sufficient equity position and the borrower just needs a few more months on the houses on the market, and there is looking to sell it. We don’t always require it, but we obviously pulled out a fresh appraisal and ensured that our equity position is sound.

And that's other Rick, right.

I'm sorry, what?

Sorry, I just noting that the associated fees are in other income that Dash mentioned.

And as we move through 2024, under current market conditions, is it reasonable to assume on a roughly 50-50 mix between payoffs and extensions at this point?

We would actually probably expect extension activity to drop a bit. For context, since the beginning of the year through today, the end of April, we've had about $250 million in payoffs in the full bridge portfolio; about 80% of that was from 2022 vintage earlier. So you're starting to see a little bit better velocity, particularly as the single-family market remains strong and people are starting to move inventory a bit more efficiently as the single-family markets remain strong. So we would historically expect this number to trend back closer to a third or so. To make sure we don't bury the lead, we thought the performance of the bridge book this past quarter, certainly from a credit perspective, was substantially improved. When you dig into the numbers and look at the slope of delinquencies and credit, there is significant flattening that we don't think we've observed across the sector. So we're really, really pleased with that our asset management team. And how we've sort of evolved that book. But I'm sure all of that will be evident in the review.

We certainly see that on the bridge book, with a 20 basis point increase quarter-over-quarter versus 260 the quarter being or 160 the quarter before, so that second derivative is very favorable. There's no question on that. I'm just trying to understand how the dispositions work.

Yes.

Our next question comes from the line of Bose George with KBW.

I wanted to ask at the Investor Day, you guys mentioned accretion from the JV. I think it was $0.25 to $0.27 over a three-year period, and the $0.15 that was mentioned in the review today is that over a shorter time frame and then we'll sort of grow into those higher numbers over the next three years? I'm just trying to figure out the cadence.

Yes, and we're really just reiterating what we had said at Investor Day. So it remains the same, and it's a $0.15 annual number for the joint venture in terms of accretion over where we stand with our standalone business as it is financed today. As you saw with us in Oaktree, it will take a quarter or so. We're actively working on financing facilities for the joint venture. We're seeing a lot of very robust appetite from lenders to finance this facility, as you might expect, which is really going to help us further with our deployment. So we're excited about it, but this will be later in Q2 deployment as we get those lines established.

In terms of deployable capital, how should we think about that now? You have, I guess, $274 million of cash, but you've obviously more flexibility with the JV. And the review mentions unencumbered assets that you could leverage up. So just trying to put the pieces together and think about how much flexibility you have.

We think our flexibility is really good, Bose. It's a great question. At the moment, in terms of liquidity on hand, we think we have about $175 million of deployable capital. That does not include further optimization of unencumbered assets. This is net of the July 2024 convert maturity, so we're backing that out. We have just over $100 million of remaining outstandings under that issuance. So net of that, today we have about $175 million and that can go up by another $125 million plus or more between further draws on CPP, which, as a reminder, includes unencumbered assets as well as equity in certain of our operating subsidiaries. So definitely net asset value there that's not otherwise easy to monetize, we can borrow against. We feel really good about our deployment. It's a big part of the NII walk, which was up 20% quarter-on-quarter. Where we see future growth, we have some information in the review this quarter about that. A lot of that is linked to this deployable capital and just our ability to go on offense and continue redeploying that like we did in the first quarter.

Our next question comes from the line of Doug Harter with UBS.

I have another question about the bridge delinquencies. Last quarter, you provided some insight into the breakdown between multi and single assets. Could you give us an update on that mix of delinquencies? Also, how are the resolutions trending, and what can you tell us about the liquidations occurring and the recoveries related to your loans?

Sure. We do still have that information. It is in our Excel tables this quarter. It’s out of the body to review. So it's Table 16 in our Excel tables. I would say the trends are similar. One thing I would note is, as Rick pointed out, about 4.7% 90-plus at 3/31. Chris talked about the flattening of that curve. Since the end of the quarter in April, we have resolved about 1.3% of the portfolio. So that 90-plus number is now in the 3s; that's not reflected in the review. We've been able to continue momentum with resolutions on guarantee during the month of April year-to-date. In terms of outcomes, we've been pleased with the bridge portfolio; most of the severities have been zero. They've averaged high single digits in terms of what we've resolved, which in terms of where we have the position marked, we feel very, very good about those outcomes and resolutions. You didn't ask about term, but I'll mention it. We've continued to see good momentum there. Realized severities have been very low in that book, sub 1% in terms of the loans to be resolved in the first quarter. So, like we've talked about before, we're not altogether surprised at some of the delinquencies, but we're pleased that they're headed back in the right direction. Ultimately, it's about the long content. As we resolve, Chris talked about how the asset management team is doing; we've been pleased with the ultimate outcomes there so far.

I also want to note that in net interest income, our non-accrual loan category decreased by about $70 million in the quarter, which added approximately $2 million to net interest income for the portfolio. We strive to be conservative when placing loans on non-accrual, even before they reach 90 days delinquent, and we typically don't remove them from non-accrual status until the borrower is caught up. I just wanted to mention that; it may clarify our net interest income.

And can you give us an update on how book value is trending so far in April?

Book, we estimate, as of effectively today, is flat to down 1%.

Our next question comes from the line of Crispin Love with Piper Sandler.

So just first with banks pulling back on Jumbo. Can you just speak to some of the competition that you're seeing in the space? Are you seeing any new entrants coming in, whether they are mortgage players or asset managers? Just curious on the competitive landscape here. Thanks for pulling back and who could be contained with you per share now and who might enter the space going forward.

Sure. The competitors that we've seen over the past year or so have largely been the Wall Street banks, the broker dealers. I think our bank strategy is pretty differentiated because most banks, their first choice is to sell loans to other banks; so if you're looking for a capital partner, we're kind of like Switzerland in that regard. Our business operates a lot like the GSEs where we don't service mortgages, we don't originate mortgages. From that standpoint, the competitive landscape hasn't changed that much. We've used this period of time where transaction activity in the housing market has been very low to deepen these relationships. We keep adding banks to our seller base. We've actually gained a significant amount of share with the independents as well. I think just being capital efficient and being a great partner has enabled us to really build our business. I'm pretty excited about the growth trajectory of consumer residential. We're printing results there with CAGRs that reflect that. So ironically, I think the market views an easing of rates as extremely positive for our business, and that's true. But as rates sort of hang out at these levels, every day, it's compelling another bank to think about a capital partner. From that standpoint, ironically, it's been very positive for the relationships that we're building. Hopefully, we can continue to do that through the course of 2024.

And then just on the bridge book. On the quarterly funded volume side, it's decreased, but not as much as some other players in the space. So how do you expect funded volume to trend across the bridge and term portfolios? Do you think you could be reaching the bottom here? Are you seeing opportunities? And are the additions pretty much all in SFR, and do you think there are any multifamily or just very little?

Yes, that's a great question. As we said in the prepared remarks, April's run rate will be about 15% higher than the average monthly run rate for Q1. There are a few reasons for that. The one we're most excited about, frankly, is the growth in the single asset bridge funding. That's a business that we are very committed to. Last quarter, as you saw, it was about 16% of our fundings in April, and that will probably double or probably account for 35% of our fundings in April. That's a single-family strategy, largely an area where we feel like we can compete strongly in the market with our sales team and fulfillment, but also, frankly, our distribution. Our distribution across our businesses, but certainly in residential investor at this point is probably in as good a spot as it's been in quite some time. When you marry securitization demand, and obviously, the joint ventures with CPP coming online next to Oaktree, demand for whole loans remains robust, particularly for those smaller balance single-asset bridge loans. We've used that to our advantage to really grow volume there and take advantage of the funnel. So that's one piece. Term volumes are trending in the right direction as well. Even with benchmark rates higher, securitization spreads have tightened. We’ve been able to use that to our advantage to build a pipeline. We're in a situation where many borrowers are aging out of bridge loans with very high single or low double-digit rates and are willing to accept somewhat higher term loan rates as a result of where our benchmark rates are at this point. All of these are tailwinds for the business, starting with the right funnel and distribution. And to address your question on multi, yes, we're remaining very selective there. As we said last quarter, there were a lot of multifamily deals over the past four or five quarters we could have done, and we're glad we didn't. We're going to be more opportunistic there. There's a bit of an analog to the bank story and jumbo about the focus as well, which is something we're definitely concentrating on. A lot of really good sponsors that have received low loan-to-cost loans from banks over the years are not going to be served by those depositories anymore, multifamily sponsors. That's definitely an opportunity for us, where again, we have stronger distribution than we've had in quite some time. These pieces need to come together in terms of NOIs and thoughts on multifamily broadly but at a macro level, the pieces are there for that to potentially grow as well.

Our next question comes from the line of Don Fandetti with Wells Fargo.

Just to clarify, the $100 million drawdown on the CPP facility, am I thinking about it correctly that you're going to use that to essentially fund residuals of residential credit production? Is that how I should think about that?

Yes. We can use it to fund residuals and securitizations as we go forward. We also have a number of residuals that are unfinanced today that represent $370 million of our unencumbered basket. So I think Dash mentioned the revolving nature of it, and we did in our prepared comments as well. I think that's probably the most interesting feature of the facility just because our working capital needs of the residential mortgage business flex even intra-month as we're securitizing at this cadence once a month. It really allows us to accordion with those working capital needs. But yes, it allows us to finance various types of assets between our residuals from all of the securitizations that we do and some of our other assets within the investment portfolio.

And then in terms of EAD covering the dividend, I guess you mentioned that's going to happen this year, probably driven by NII continuing to march higher and then you've got some cost saves. Is that sort of the best way to think about it?

Yes, that is. If you think about our earnings available for distribution increasing from $0.05 to $0.08 this quarter, $0.08 really would have been $0.10 if on the pro forma cost structure that we'll have in Q2 marching forward. The incremental $0.06 towards the dividend is really somewhat driven by the capital deployment that Dash mentioned, but also the April trends that we're seeing in the business. We mentioned a 25% increase in lock volumes for the residential business, and a 15% to 20% increase in the investor pipeline as well. A couple of pennies of that walk were from increased but reasonable growth assumptions in the near-term for mortgage banking, really underscored by what we're seeing in the pipeline today.

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

Brooke, you kind of hit on it. From Dash’s prepared remarks, the 25% run rate in April volume versus the monthly average in Q1 on jumbo. I think Dash mentioned some of the financing, so even as bank production was down, you're getting a higher share of that. Can you talk about how you view the market share opportunity to continue gaining that? As you look out 12 or 18 months in the future, what type of quarterly volumes do you think these relationships and the market and your platform can support if you get a little cooperation from rates moving lower, say, in 2025?

Yes, it's a great question, Stephen. We really wanted to focus on our strong April, given the backup. Our point is that even if the market remains constrained, there's significant room to the ceiling from a wallet share perspective. We feel like we're currently in that 4% to 5% market share range for jumbo. We talked about the doubling of IMB volumes quarter-on-quarter, which is a really big deal because that's been a huge historical moat for the business. That crowd is always going to be in an originate-to-sell model with a couple of potential exceptions. Being on the screws with that cohort is important. But the bank opportunity is really the big one. It's the big ocean, so to speak, in terms of where volume could go, and we're really just getting started there. Bank volume was up quarter-on-quarter, like you said, even though depository volume was down. The big thing with banks, and we've talked about this before, is from a wallet share perspective, once you're in, you're in. The vendor management and the setup processes of banks take time. Because a lot of these banks are returning to the market for the first time in a while, it has been a process to get each other switched back on. That's a really deep moat because to the extent we're locking loans with them now, it's unlikely they'll run out and go through another several-month vendor management process again. So that’s a big piece. We really believe these relationships take time to stand up, personally, but also operationally. We’re in the early innings of the bank volume, and that could be a huge driver moving forward.

Definitely agree there and appreciate the comments. Can you touch on the gain-on-sale margins? It looks quite strong for Q1. Can you talk about the margin on the April securitization? I mean, that's the comment there, but I'm curious if those strong margins continued into April?

Yes. Our pricing on our April securitization was actually even stronger than our March deal. We continue to see really strong margins. I think part of the commentary that we wanted to make sure came across today is just the durability of what we've done in terms of some of the changes to how we're efficiently financing the business that's come through in net interest income and also to margin on the business this quarter and also shifts in our hedges as well. So I think that's definitely helping from a margin perspective.

Great. I noticed in your release or the deck, you talked about the first directly originated AGI investment and launched a closed-end second product through your residential consumer seller network. Can you talk about kind of uptake and outlook for these products and maybe the competitive landscape around those types of new products you're launching here?

Sure, Stephen, I'll weigh in. There’s a lot of excitement brewing around the second lien products in the market. I think private capital is crowding in there. I think it's so lucrative that even the GSEs want to be involved, which is interesting. Our business is well-suited to source that product. We're in the midst of rolling all of this out to our seller base. It takes time, with the training, the guides, and the process, as Dash mentioned. We’re quite excited about it. We think we've got excellent institutional capital partners interested in working with us from a distribution standpoint. I think AGI's time is coming. We saw a great Case-Shiller report today. As you look ahead and consider the trajectory of HPA from here, I think AGI will continue to grow. To the extent we can help institutionalize the product, make it safe, make it transparent, that’s a huge total addressable market (TAM) for this business. We're focused on both. The home equity product front is going to be a key storyline for us over the next few quarters.

Our next question comes from the line of Eric Hagen with BTIG.

Hey, looking at the capital utilized in the quarter in the jumbo segment, it looks like it was $160 million, but you ended the quarter around $200 million. Would you say that's a pretty steady level of capital at these mortgage rates? Do you see that moving around much in the near-term? Can you also share what the return on capital is for the retained tranches from the jumbo securitization right now and how that compares to levels in the past?

Sure, Eric, this is Dash. I think you could certainly see capital allocated to that business going higher. We have talked about utilizing the CPP facility to support that. Certainly, as volumes hopefully trend up, I think you could see it hanging out in the $200 million to $250 million range or something like that. That level of capital would support I think our run rate at or in excess of our April run rate that we talked about. In terms of return on the retained pieces, it's low-to-mid double digits at this point. It's largely on the subs and depending on some of the senior on the IOS piece that we typically keep. That’s the return profile right now.

Can you share how big the unfunded commitment is in the bridge book at this point? Can the CPP funding be used to support unfunded commitments or is it only for really new loans? You guys don't have a CECL reserve for the portfolio. If there was a loss assumption that you could share for the portfolio just for benchmarking purposes, that would be kind of helpful.

Sure. We had about $513 million of unfunded commitments at the end of March. Remember we only had about $80 million of draws on the quarter. This number has come down, as you're tracking over time; our payoffs have significantly exceeded our draws. This will probably be more of a source of self-financing in a bridge that used no capital in the quarter between the capacity we had in our RPL and facilities as well as our Joint Ventures and payoffs. We will likely not all capital is fungible, but that's not the intention of utilizing the CPP facility. In terms of your commentary on our marks, we have about 150 basis points across the bridge portfolio as essentially reserves, given where it's marked at 3/31, which varies between certain cohorts. We have about 300 basis points across the entire multifamily portfolio. Our non-performing loan cohort was about 10 points of reserves.

Our next question comes from the line of Steve Delaney with Citizens JMP.

Congratulations on the nice start to 2024. I'd like to go back and talk a little bit about IMBs, the mortgage bankers. I'm curious if you could just give us some general automation of approximately how many or how has that grown over the past year? Are you focusing on the largest players in the space just from a standpoint of efficiency and risk return? Just curious about how that has emerged here. Not something that I recall talking a lot about in the past, and your thoughts about how big this might become.

Sure, I can start there, Steve. Our total seller base from banks and non-banks is about 190 discrete institutions. Of that, about 115 are non-banks. We've grown the bank piece to about 75 over the past few quarters. IMBs have always been a core foundation of our volumes. We lock loans with a wide variety. There's a lot of the biggest household names in that list. We talked a little bit about this last quarter, but it's worth underscoring which is just the diversity of our overall volumes across the seller base. We had a $1.8 billion loss quarter. We had a big April. Generally, no one seller is more than 5% of our production. You can see that when our Sequoia deals are in the market, just the distribution there. We're proud of this. It's years of building this network, particularly on the IMB side. The IMBs have been a more meaningful part of overall production. They were there when many banks stepped back last year with some volatility in the banking sector. Things will move around a bit, but we remain very bullish on the IMB opportunity and we're thrilled we have those relationships as we've provided liquidity.

But I think they've invested in technology. They're way ahead of the banks. The banks have the consumer relationships, but they just don't have the infrastructure if you will the IMBs have for sure. Just one quick one to follow up on both. You know, there's an old saying who’s got all the money? Well, it's the bank. So, who’s got all the mortgages would be the banks too. When we hear about bank both is it working directly with banks or possibly with Wall Street treats both brokers, and might be representing smaller banks that you don't have a relationship with? Just curious where the flow is coming from on the bulk packages.

It's definitely all of the above. There are some IMBs that execute in both fashions, and that was a part of the story in Q1. Certainly, partnering with larger Wall Street banks is something we've done a lot of over the years and have continued to do. We're really just scratching the surface probably in terms of getting bulk packages off of bank balance sheets. Chris mentioned that as rates hang out here, even if some of those sale prices are a little out of the money, it is going to compel banks to come to the table and find solutions more quickly. That remains a huge opportunity that we're excited to hopefully partner with flow relationships going forward.

Yes, I'd say Steve, a few things. As we partner with some large institutions like CPP Investments, Oaktree, among others, we’re continuing to become more formidable in our ability to be aggressive, both in terms and size. Over time, we should continue to see more bulk transactions. It's worth noting that with things like CRT, even bulk, one of the challenges with portfolio lenders who haven't been attuned to distributing to the capital markets still requires the same challenges with the loan files; it has to be in order on a lot of these for CRT, any ratings. For bulk, whether it's whole loans or securities, there's considerable work that goes into those transactions. Our efforts to work with banks on the flow side should pay dividends over time on the bulk side. We're starting to see that; bulk was a meaningful part of our Q1 volume, and we are very open for business to do more on that front.

Our next question comes from the line of Kyle Joseph with Jefferies.

To follow up on fees. Obviously, we don't know what the end-game is going to look like in the end. But nevertheless, it sounds like banks are already preparing to reduce mortgage exposure, and obviously, that's a huge opportunity. But have you seen any kind of incremental capital formulation to take advantage of the banks exiting? Or have you seen basically any changes in the competitive environment on the other side besides banks leaving?

Nothing overly formidable to this point. One thing I will say that's meaningful starting with this earnings call cycle is that you did start to hear certainly the large banks voice they expect to be compliant with the end-game rules. As they do that, other banks will follow. Over time, banks who aren't messaging early compliance will sort of be in a different category with concerns that they can't comply currently. I do think that was a really positive sign and validation that large banks expect the rules to change. We’ve been out in front of that. We've talked about how regulatory changes drive the cycles in our business. We’re going to keep building these partnerships. Certainly over time, there's great interest in things like CRG. There are private credit funds out there that want to be involved; there are regulatory challenges but also operational challenges as I laid out minutes ago. We're quite differentiated because we have the capacity to help banks walk through that process, and hopefully, there will be capital demanding these types of transactions outside of Redwood. We're arguably better positioned to take advantage of it.

Thank you. We have reached the end of the question-and-answer session. This also concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.