Redwood Trust Inc Q2 FY2026 Earnings Call

Redwood Trust Inc. second quarter 2026 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operate assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natasha Fothering, SPNA leader. Thank you. You may begin.

Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's second quarter 2026 earnings conference call. With me on today's call are Chris Abate, Chief Executive Officer, Dash Robinson, President, York Carrillo, Chief Financial Officer, and Abhinav Asana, our Chief Technology Officer. Before we begin today, 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, which include 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 and quarterly report on Form 10-Q, 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. Reconciliation between GAAP and non-GAAP financial measures are provided in our second quarter Redwood Review, which is available on our website, redwoodtrust.com. Also note that the contents of today's conference call contain time-sensitive information that are accurate only as of today. 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. It will be available on our website later today. With that, I'll turn the call over to Chris for opening remarks.

Good morning, everyone.

Over 20 securitizations. Order pricing three securitizations in a single week. one for each of our operating platforms, the first for Redwood in our 32-year history. That makes us happy and a little nostalgic about how productive the company operates these days relative to the past, when two to four securitizations a year was deemed just fine by market standards. Proudly speaking, it's no secret the housing finance business has been a lot less forgiving for this current generation of mortgage practitioners, first in over 40 years not to benefit from a long-term bull market in interest rates, but served as an invisible tailwind for both the lucky and the smart. Home affordability and supply headwinds, both closely linked to high interest rates and regulation, have impacted the addressable mortgage market and how mortgage businesses fundamentally operate. Today's environment requires higher operating efficiency and capital turnover in a deep strategic mode that can drive growth despite home sales activities still coming in at multi-decade lows of this extended rate cycle, we're prioritizing a few key differentiators that are worth mentioning. Let's start with technology, housing finance platform. Our multi-agent AI systems help teams retrieve answers quickly and apply the same intelligence to complex tasks, including seller financial reviews, guideline comparisons, and contract analysis. The result has been faster expert reviews, greater consistency, and greater scale. There are people in the loop on every key decision. Direct expenses were 64 basis points as a percentage of volume for the first half of 2026. Already at 28% of things from our 2026 AI-enabled automation initiative, 23,600 hours, up more than 50 per 2026 meaningful impacts on due diligence costs rate sheet pricing and guideline analysis technology platform supporting sequoia put 90 percent annual volume growth with consistent margins up against anyone operating in the housing market today a market that has been operating at over 21 levels representing less than two percent of our capital horizons gives us access to more than 25 early stage companies approach of adopting ai inside redwood and are another important part of the non-QM space, while Corvess is building momentum in its smaller balance offering mortgage refi cycle. It also differentiates our earnings model in comparison to monoline operators with revenues more tied to MSR values and associated content by year-end 2026.

Product innovation, powered pricing, and guideline analysis tools. Institutional investor demand continues to support the non-QM sector's growth in general and Aspire isn't specific. The business completed its second and third securitizations issued under the Spire in support in the tranches once again syndicated profitably to third-party investors. At June 30th, 60-plus-day delinquencies within Aspire's securitized population were less than 10 basis points. Subsequent to quarter end, we executed definitive documentation for an Aspire-dedicated joint venture with Cray Hill Capital Management, a leading structured credit investor. Through time, the vehicle has the potential purchasing power of up to $8 billion of loans, underscoring demand for Aspire's products, and an important early validation for the business. Similar to our other joint ventures, it provides a source of recurring revenues with added performance fees upon reaching stated return thresholds. Each of our platforms now operates with a dedicated joint venture with key benefits to operating leverage and revenue durability going forward. Forvest, our direct originator focused on lending to housing investors, funded $410 million of loans during the second quarter, down approximately 5% from Q1 as higher rates weighed on portions of the pipeline and legislative uncertainty impacted certain key pockets of market activity. We remain disciplined while borrowers and developers assess the evolving regulatory and legislative landscape. With the landmark housing bill now passed and billed for rent carved out from institutional ownership limitations. Activity is beginning to reopen in areas that have largely paused. Corvest remains well positioned, supported by its long-standing focus on experienced sponsors below the largest institutional segment. A key milestone for Corvest during the quarter was its first term loan securitization since 2023, since which time our term loan production has largely been sold in whole loan form. The $268 million transaction priced accretively to loan sale economics and was placed with close to two dozen discrete investors, a market response that underscores the deep demand for the platform's origination activities. The team also entered into a new servicing arrangement later in the second quarter designed to reduce administrative demands and lower servicing costs over time and launched a targeted business development initiative to expand. Immediately realizable returns in mortgage banking continue to sit well above 20%, the value of continued reallocation away from our legacy investment segment remains significant. At quarter M, allocation to this portfolio totaled 12% of overall capital, down from 15% on March 31st and 63% lower than one year ago when we announced the accelerated wind-down of this position. Early in the third quarter, we commenced formal marketing of a substantial portion of our remaining legacy bridge loans and continued to progress individual line items through to resolutions, unlocking capital and reducing associated security. Thus far in the third quarter, we also priced a new financing arrangement for the remainder of our home equity investment portfolio. At Proforma, we expect to reduce segment capital to below 10%. 90-day-plus delinquencies in the unsecuritized legacy bridge portfolio were roughly flat versus March 31st, and the priority remains fully moving on from this position growth of our core activity. I'll go over to Brooke to discuss our financial results.

Thank you, Dash. Turning to our second quarter results, we reported a gap net loss of $3 million, or $0.03 per share, compared with a $0.07 per share loss in the first quarter. Book value per common share was $6.90 at June 30th. The 3% decline from $7.12 at March 31st was primarily driven by marked market changes and ongoing carry costs within our legacy investments portfolio, as well as the $0.18 dividend paid to common shareholders. On a non-GAAP basis, consolidated earnings available for distribution, or EAD, was $20 million, or $0.15 per share, compared to $0.21 per share in the first quarter. The quarter, again, reflected two distinct trends. Our core segments remain highly profitable, generating $34 million of earnings available for distribution, representing an 18.5% annualized ROE, while legacy investments generated a $14 million EAD loss. Turning to our segment results, aggregate mortgage banking net revenue remained essentially flat, despite a roughly 6% decline in production, reflecting stable to improving margins across the platforms while direct expenses declined. The result was a 33 percent annualized return on average capital for our operating platforms with capital efficiency continuing to improve. Average capital required per dollar of production fell to roughly 2.6 percent in the first half of 2026 from about 3 percent a year ago, underscoring the scalability of our mortgage banking platforms as volumes grow. Prior to corporate allocations, Sequoia generated $32 million of gap net income compared with $38 million in the first quarter. The sequential decline was primarily volume-driven, as purchase commitments declined 9%, while the 92 basis point gain on sale margin remained near the high end of our historical target range. Cost per loan improved to 17 basis points from 18 basis points, demonstrating that we maintained operating discipline as volumes moderated. Initial loan transfers to Castle lake occurred near quarter end, and therefore we expect the partnership to begin affecting capital velocity and fee economics more visibly in the second half of the year. Aspire generated $7 million of gap net income, up $5 million sequentially. Stock volume increased 31% to a record $2.1 billion, while gain on sale margins increased to 101 basis points from 73 basis points as securization spreads normalized and hedge performance improved relative to the first quarter. Importantly, this growth was achieved with improving capital efficiency, resulting in a 33% annualized return on capital for the segment. Corvess generated $1 million of gap net income compared with $3 million loss in the first quarter, which had included approximately $5 million restructuring charges. Excluding acquisition-related expenses, EAD contribution for the segment increased to $3 million. Net revenue rose 8%, reflecting improved term loan execution, while direct operating expense declined meaningfully following the actions taken earlier this year. Net cost to originate was 96 basis points in the second quarter, up from 79 basis points in the first quarter, reflecting modestly lower fee and income relative to expenses, along with 5% lower quarter-over-quarter volume. Redwood Investments generated approximately $1 million of gap net income, compared with an $8 million loss in the first quarter. The improvement reflected a more constructive valuation backdrop across portions of the retained portfolio and lower expenses, although the segment continued to experience fair value pressure in selected bridge and SFR investments. We deployed $72 million of capital into investments sourced from second quarter securitization. Because much of that deployment occurred late in the quarter, its earnings contribution should be more impactful in the third quarter. During the second quarter we refinanced a portfolio of retained securities at an all-in cost of funds at approximately 150 basis points below the prior financing. With approximately $1.5 billion of secured portfolio debt callable over the next 12 months, we retain meaningful optionality to reduce funding costs as opportunities arise. Legacy investments generated a $23 million gap loss, which included $12 million of negative fair value changes, primarily on legacy bridge loans, inclusive of realized resolution activity. The financing, marketing, and structured sale initiatives DASH discussed are intended to release capital for higher returning uses and reduce the negative carry still embedded in consolidated EAD. Based on the current return differential between legacy and our core segments, we estimate that each $100 million of capital successfully redeployed could improve consolidated EAD ROE by approximately 200 to 400 basis points through reinvestment in our operating platforms or potentially share repurchases at appropriate levels. Total operating expenses were down 21% in the quarter, with G&A declining to $38 million from $49 million. Approximately $7 million of the reduction reflected restructuring charges recorded in the first quarter, with the remainder primarily attributable to lower compensation and variable expenses. More importantly, first half adjusted expenses represented 64 basis points of production, compared with 88 basis points for the full year 2025, as volume growth continues to increase expense growth. We expect some natural variability in quarterly expenses, but the structural efficiency gains reflect in cost-per-loan trends and expenses relative to volume remain intact. Recourse debt declined by approximately $150 million to $4.5 billion, while recourse leverage declined modestly to five times. More than half of recourse debt supports mortgage banking inventory that turns rapidly through securitizations, whole loan sales, and joint ventures, with loans held for an average of approximately 26 days in June. We ended the quarter with $192 million of unrestricted cash, approximately $100 million of unencumbered assets, and $3.7 billion of excess warehouse capacity. In the last year, we have renewed or added approximately $4.4 billion of capacity, and the senior notes issued in the quarter further extended our unsecured maturity profile. And with that, I'll turn the call back to the operator for questions.

Thank you.

We will now be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Rick Shane with J.P. Morgan. Please proceed with your question.

Good morning, guys. Can you hear me?

Excellent. Sorry, I couldn't tell if that fun was muted. We have a new system over here. Look, and it's 5 in the morning. Look, you guys are making progress in terms of reallocating capital. There's $195 million left. You're talking about getting down to 10% by the end of this quarter. Realistically, how much of that $195 million do you expect to be able to realize? Obviously, I think there's some friction, as we saw this quarter, and as the business de-scales, there may be further just operating losses associated with it. So how much of that sort of $195 million melting actually will go into the remainder of the business over the next couple of years?

Hey, Rick and Sash, I can start. So a couple of pieces in your question. We expect to continue trending towards the capital in the legacy investment segment below 5% by the end of the year. That's how we've been guiding the market for a few quarters now. So, as we said in our prepared remarks, you know, we actually did the transaction this week, which we think Proforma will bring allocated capital to below 10% to that segment. So, that's definitely progress. As I also mentioned in the prepared remarks, you know, we're currently working on, you know, a disposition plan for a large portion of the remaining unsecuritized bridge loans, which we'll hopefully have more to talk about for Q3 earnings. So we believe we're still on track, you know, to have that segment below 5% of capital by the end of the year. As we've said a lot, we're trying to be balanced between disposition, speed, and execution, but also, you know, recognizing just the significant accretion of redeployment of that capital. You know, as we can elaborate on, we're highly confident that as that capital continues to come out of that segment that we will have a place to go with it immediately. You know, we're still doing $8 billion-plus volumes, you know, in mortgage banking, and we're bringing on new joint ventures, you know, all of which speak to the fact that, you know, those are all tailwinds for us to continue to grow market share in mortgage banking. As Brooke articulated, you know, the decisions around continuing to unlock that capital, you know, we have to weigh the right execution, but also the fact that, you know, there's $0.14 to $0.15 a quarter, you know, of negative carry and opportunity cost, you know, within that segment that we think is immediately realizable through the retirement of secure debt, like I mentioned, and also the immediate redeployment. So we feel like the opportunities, you know, are there, you know, to redeploy very efficiently as we continue to wind that book down.

Got it. And how much – so, look, you guys executed a transaction at the beginning of the third quarter, as you've talked about. Presumably, when you were valuing the portfolio at the end of the second, you were probably pretty close to that execution. So you had a good sense of value. How much of the second quarter mark was informed by the execution of the third quarter deal? Because, again, I'm trying to understand, like, we saw capital allocation decline during the quarter, partially a portion of reallocation, but also partially a function of decline of capital. And so that's what I'm trying to understand here, sort of, of that 195, how do we think about what flows into the rest of the business going forward?

Rick, I would say, you know, every asset in our legacy book at this point, you know, we're down to, you know, a couple handfuls of loans. year. So, these are really distinct. So, the execution, I think, that we had in the third quarter of last year is helpful, but, you know, we definitely were looking at what our resolution strategy was for each of the assets at 630, and that definitely informed our mark.

Yeah, the transaction you're, I think, referring to, Rick, was for the remainder of our HEI position. And certainly the mark at June 30 was, you know, informed by that execution, which we've since, you know, completed. So that's very much in line. You know, as it relates to the Legacy Bridge portfolio, you know, Brooke is right. Obviously, as we say every quarter, that book is fair valued. It's marked where we feel like we could execute it. But we're going to be obviously responsive to, you know, to what the market tells us in terms of disposing of the rest, again, with an eye towards where we can redeploy that capital quickly and a reduction of the secured debt that's influencing some of the carry costs that Brooke articulated.

Terrific. I've taken a lot of your guys' time. Thank you guys very much.

Our next question comes from Doug Harder with BTIG. Please proceed with your question.

Hi, good morning. This is actually Will Nasta on for Doug this morning. And I know you mentioned in the release talking about having a more cautious operating posture early in the quarter. And given the move higher in rates early this quarter, I was hoping you could talk about how you're thinking about banking volume sensitivity to rates and kind of with volatility versus higher rates. How you guys are thinking about that right now?

Yeah, we definitely were more cautious in the second quarter than the quarter. rates were very, very volatile, and there was a lot of geopolitical uncertainty, as everybody well knows. June, things felt more stable, and we leaned back in. I think we said 40% of our Q2 volume was in the month of June alone. To me, that's pretty good validation that we've got recurring revenue streams from these businesses, really durable volume opportunities, And obviously, we're going to be risk-minded as we pursue them. But we saw things pick back up when we decided to lean back in in June. And I think we saw more of the same in July. You know, in the past week or two, rates have backed up. Obviously, we're looking at a 463-ish 10-year and, you know, mortgage rates. So all of that, you know, we need to factor in. But I think, by and large, we feel pretty good with our – but we can't control what's going on in the macro environment, and we need to continue to be responsive to what we're seeing on the ground. But I would say July has been a fairly strong month from a mortgage banking perspective, and we're hoping that we can maintain that momentum in August and September.

Thanks. And then just one more. I know you talked about your technology investment and how that's helped to improve expense efficiency down to, I think, 64 BIPs you guys had mentioned. I was just hoping that you could talk about kind of where you see that number trending, if you see more potential upside there, a progress you can make on that side, or if there's a particular level that you guys are comfortable with on that.

Why don't we – this might be a good opportunity for Abhinav to chime in on a few of the efficiencies we've been focused on, and then perhaps Brooke could follow up with some of the numbers.

Thank you, Chris, and thank you, Doug, for the question. I think the important part to recognize is that Redwood has been very thoughtfully investing in technology and especially AI over the last 18 months, I would say. And we've started to see some of that result in compounding value proposition for the company. We've been investing in foundational AI platforms. As Chris mentioned in his prepared remarks, we're not bolting on AI where we look at incremental or small, minor changes in how we do our business. we are rather looking at how we rethink the operating model in itself. And so as we built our platforms, we've kind of re-engineered how our operating platforms and business platforms conduct business. And so to that effect, we've not only added efficiencies in terms of where we see waste in the process, but we also have now eliminated parts of the function that no longer make sense to our business. And in doing so, we've been able to provide value as we grow our businesses. And the more important part to think about is as we scale our business, these platforms are designed to handle volume as we grow and operate at efficiencies that are going to be significantly much larger than where we are today. Brooke?

Yeah, the only thing I would add is that the improvement thus far from 25 has been driven first by just the scalability of our platforms and the amount of market share we've gained, and so volume has certainly helped that. Secondly, our variable expense structure has provided a large benefit here, and we're really starting to see technology start to carry some of its weight here on the improvement. I think the next 10 to 15 basis points improvement will probably be driven more by tech and continued scalability of our platform. But we imagine this ratio will continue to decline as we efficiently fund our loans via some of these technological enhancements that Chris and Abhinav and Dashiell mentioned today in their prepared remarks.

Great. Thanks for taking my questions.

Our next question comes from Marissa Lobo with the UBS. Please proceed with your question.

Good morning. Thanks for taking my questions. And just thinking about gain-on-sale margins, you flagged that banks were competing aggressively in Q2, but Sequoia margins were better than we expected. So how much of that resilience was mixed versus pricing discipline? And as banks lean in further, how should we think about how the gain-on-sale margins evolve?

Yeah, we observed, and certainly we're still kind of midway through earnings season here, but we definitely observed the large money center banks leaning back in, whether that was front running, the anticipated capital rule changes, we're not certain. but certainly, you know, 20%, 30% sequential gains in volume at, you know, meaningfully lower margins, at least from what was disclosed, sort of indicate to us that you saw some leaning back in. It'll be interesting to see what overall industry volumes do for the quarter. You know, we did a pretty good job of maintaining our volumes or demonstrating consistency, even while staying risk-minded, and part of staying risk-minded is preserving margins and not chasing volume. So I thought we did a good job of that during the quarter. Our business has really been built a holistic partner to banks. In July, we actually locked a very large bulk sale to a regional bank. We've been mostly buying loans from banks few years, but there could be two-way flows. The real essence of the franchise is the relationship itself and the technology implementations, the LO training, all of those things that go into a partnership. So if the banks want to lean in, particularly the regional banks, and they want a capital partner to help them do that, we're very much focused on serving you know, our clients. That said, I see housing activity meaningfully higher, and certainly refi activity had trended down. You know, these do look to be kind of market share battles between from an originator standpoint and Q2 earnings season to kind of see where overall volumes landed.

Got it. Thanks for that. And can you provide any color on book value performance quoted to date?

Yeah, we're up about approximately at 1%, so we've recovered part of Q2's decline.

Yeah, no, 1% is certainly a function of strong mortgage banking results and supply.

Okay, great. Thank you for taking my questions. Our next question comes from Kristen Love with Piper Sandler. Please proceed with your question.

Hi, good morning. This is Ben Graham, and for Kristen Love, thanks so much for taking the question. I'm wondering what your views are on the administration really focusing on housing, specifically housing affordability through GSE purchases, the single family executive order, et cetera. And then just broadly, what do you think would be some of the best ways to address the affordability issues in the U.S.? Thank you.

Well, I think, you know, the Road to Housing Act, the legislation is very focused on on, um, housing supply, which, which is the right long-term answer. Um, you know, we need more homes built. Uh, we need, we need permits to be easier to obtain. Um, you know, we need builders to be profitable. Uh, there's a lot, um, in the bill. Uh, we were very happy that, um, you know, build to rent, uh, wasn't adversely impacted at the end of the day. Um, we're excited about the future of our Corvess business. But all of those supply initiatives, I think, are going to take, those are long-run sort of initiatives. In the short run, it's really the demand side is probably all that the administration can hope to affect, you know, certainly between now and the midterms. The MBS buying at the GSEs has been pretty evident in the market. You know, there's not as many kind of natural buyers of those bonds, certainly since the Fed stopped buying a few years ago. And to have the GSE step up, I think, has certainly helped the TBA market through this very volatile rate conflict with Iran began, certainly. So we've seen some offsetting factor coming from GSE purchases. Overall, that makes its way into the non-agency space being pretty stable jumbo executions, for instance, which is very good. But in the near term, I'm not sure what else can be done to really rein in mortgage rates. We've got a long way to go before we're kind of back into a five-handle, if you will. We see meaningful pickups in refi volume. So I think home equity is a big initiative for many in the industry, you know, ways to continue to serve the client, you know, without new mortgages focused on as well. But overall, I think between now and certainly the end of the year, you know, we're sent to any big catalyst.

And one thing, too, on the road to housing legislation, you know, we've seen our core rest production a bit softer over the last two quarters, and a lot of that was largely tied to the legislation. Now that there's clarity, we have seen a pickup in transaction volume from middle market investors, allowing them to really start to reallocate capital. There was a lot of frozen capital on the sidelines, particularly in parts of the bridge market where we've been really under-penetrated, particularly in build for rent, which was about 2% of our volume on the quarter. And so, we might see a mixed shift here just from some of that pent-up demand. I think our term sheets issued are up about 40% since the trough in the spring when this was really an overhang on the sector. And so, Corvest had, you know, a quarter where income picked up, and we should see more of that as some of these deals get done.

Awesome. That's it for me. Thank you guys both so much for the color there.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Mikhail Goblin with Citizens JMP. Please proceed with your question.

Hey, good morning, everybody. Hope everyone's doing well. If I could maybe dig in and get some more color on your general thoughts on the non-QM space, what you guys are seeing in that Aspire segment of yours, your thoughts on the progression of lock volume going forward, which has been obviously very excellent, and also your expectations for margins going forward. Thank you.

I can start there. We are still very much of the view that the non-QM market is going to continue to grow. I think we said in the prepared remarks, there's 20% or so expected growth this year. And so we think with Aspire, we're leaning in at the right time to what's definitely a growing market. I think some of that is always with these consumer products is just is consumer awareness, and I think the market's come a long way over the past couple of years in making consumers that qualify for these loans aware that they can qualify, you know, the folks that aren't traditional W-2 employees. So I think that's been a big development for the sector. In terms of how we're approaching it, you know, one of the value propositions for Aspire from the beginning has always been just the incredibly strong foundation from our Sequoia business and, you know, the years-long relationships we've had with sellers, more of whom we've seen in-source, you know, these sorts of expanded credit products, you know, as rates have stayed high. You know, as you know, a lot of our long-time relationships that we've bought jumbo loans from for a very long time, you know, have begun to in-source these loans over the past couple of years to diversify their product offerings, you know, retain and attract LOs, et cetera. And so that's been, I think that competitive advantage has been empirical in Aspire's growth at this point, you know, two-thirds or so of our Aspire production, you know, is with existing Sequoia relationships, which is, you know, pretty close to how we expected it to happen. But we're also, you know, growing with new sellers, and we have a lot of existing sellers that aren't online yet. So, when you think about the growth, you know, to $2 billion a quarter, some of that runway is what underpins, you know, our goal that Aspire speaks for, you know, closer to a 10% market share, by the end of this year, early next year, up from what we estimate to be 5% to 6% currently. As it relates to margins, we're still expecting to be very much in our long-term range of 75% to 100%. We're excited to get this new joint venture up and running as sort of a fast follow from the Castle Lake joint venture and the Sequoia business. those jvs in general just to to speak to that for a second you know just the the pricing power that they give us in the market and the ability that you know we have to to leverage our internal capital you know 10 to 20 times you know with these partnerships you know we're our dollar goes a lot further and at higher roes you know when you combine you know the certainty of those economics the fees we earn and obviously you know the fact that we're partnered with para-pursuit capital next to us that's 80 to 90 percent plus, you know, of the equity of those vehicles. And so it's become a really virtuous cycle with how we've brought some of this outside capital in to drive growth. And, you know, we certainly expect Aspire to continue to grow. I would say that the market in general, McHale, continues to be very responsive, you know, to these sorts of cash flows. If you think about the ability to access mortgage credit, You know, the GSEs haven't issued deals in a while. It's uncertain when they'll do that again. And so the non-QM market continues to be, you know, a pretty efficient vehicle for investors to put capital to work in U.S. housing credit. And I think you've seen that and how well the markets absorb volumes and obviously it would be over.

Thanks, Dash. That's much appreciated. If I could squeeze in one more, just your guys' general thoughts on borrower credit quality at the mid-year point.

You know, our experience, Mikael, has been quite stable. So we track, obviously, our delinquencies and certainly our underwriting guides, and we've been pretty fortunate with the performance of the book up to this point. More broadly, obviously, there's some warning signs out there, but I think for us, we're focused on working down our legacy book. and Corvess, or I'm sorry, and Aspire and Sequoia are pretty consistent.

Thanks again. Appreciate it.

Our next question comes from both George with KBW. Please proceed with your question.

Hey, everyone. Good morning. Actually, I just wanted to go back to the expenses discussion. The comp expense was down quite a bit, quarter of a quarter. Was there some structural stuff, or was it just like was 1Q, I guess, had some of the year-end So, anything to just call out there?

Yeah. So, thanks for asking. You know, part of our prepared remarks were just really calling out that we did have about $5 million to $7 million of kind of restructuring-related expenses in that Q1 number. So, we expected that to come out of our run rate. We had originally guided, I think, last quarter that we should be inside our fixed comp from Q4, which we saw in G&A by a couple million bucks. And so, you know, we had about $7 or $8 million that was attributable to just the one-timers that were in this quarter, that were in last quarter. But we also had, you know, we did have lower acquisition costs just based on slightly smaller volume. We did have slightly lower portfolio management costs relative to the first quarter and then just generally fixed comp expense and some variable costs were the remainder of the delta. So, you know, we've really tried to ensure that we're putting out enough metrics on the expenses of the business, particularly given how much we've increased volume since the fourth quarter for that comparison, you know, point where we're down on an annualized basis, probably 10 to 12 million of G&A, which we had guided and volumes up a couple billion relative to that quarter. So, again, back to the point around technology and our scale, you know, we're proud of those efficiency metrics.

Okay, great. And then, actually, I don't know if you mentioned this, but the allocation of capital, you know, to those capital looks like reallocated from mortgage banking to the investment segment. Was that just sort of reflecting the economics of that, or just curious what happened there?

Yeah. We have several servicing or other IO-related assets that hedge our pipeline. At a certain point, if those lose some of their pure hedging value for mortgage banking, based on our pipeline, we will move them into the portfolio as we like those profiles as long-term hold assets as well. So that was really the mixed shift between the capital allocation, between the portfolio and mortgage banking.

Okay. And then was the decline in servicing income because of the reallocation?

No, we just saw a slight pickup in speeds relative to our Q1 results. So that was just a small market impact from legacy MSR.

Okay. We have reached the end of our question and answer session which now concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.