Good afternoon, and welcome to the Redwood Trust, Inc. first quarter 2022 financial results conference call. Today's conference is being recorded. I would 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 Redwood's first quarter 2022 earnings conference call. With me on today's call are Chris Abate, Redwood's Chief Executive Officer, Dashiell Robinson, Redwood's President, and Brooke Carillo , Redwood's 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 or business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts, and assumptions that 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 could 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 are provided in our first quarter Redwood Review, which is available on our website at redwoodtrust.com. Also note that the content of this conference call contains time-sensitive information that is only accurate as of today. Redwood does not intend and undertakes 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 will now turn the call over to Chris for opening remarks.
Thanks, Kate, and thanks to all of you for joining us today. On our fourth quarter earnings call in February, we approached our commentary with a cautious eye on changing market trends in the mortgage sector. Fed had signaled its plan to raise rates, the conflict between Russia and Ukraine was just beginning to be a headline, and markets were reacting with fear over anticipated uncertainty and the volatility ahead. As a point of reference, markets were estimating four, five rate hikes this year back in February. Today, many market observers are expecting nine rate hikes. Additionally, the ten-year treasury rate has risen over 120 basis points since year-end, and the spread between the two year and 10-year has collapsed from 80 basis points to zero by the end of the first quarter. Mortgage rates may soon eclipse 6%, the highest level in over a decade.
All of this has remarkably occurred in the span of just a few months. In these markets, there is truly nowhere to hide, and it's times like these that help differentiate competitors in a way that can't be easily seen during periods of extreme Fed accommodation. That's why we're so pleased with our performance during the first quarter, which included GAAP earnings of $0.24 per diluted share, representing an annualized ROE of 9% and book value of $12.01 per share, effectively flat since year-end. This is despite fixed income markets turning in their worst performance in over 40- years. We also paid a $0.23 per share quarterly dividend, unchanged from the fourth quarter, and are generating strong cash flows and earnings to sustain or grow that dividend going forward.
All told, the resiliency of our mortgage banking businesses, coupled with another quarter of very strong fundamental credit performance across our investment portfolio, has resulted in balanced financial results in an otherwise lopsided quarter for the broader mortgage sector. What has become clear early in 2022 is that this will be a year of great transition for the industry. In addition to the rise in benchmark rates, the Fed, which has effectively become the world's largest agency mortgage REIT, has signaled it may begin aggressively paring back its $2.7 trillion of MBS holdings. Navigating those dispositions will be an ongoing challenge for market participants, particularly those who benefited the most from the Fed's accumulation of MBS over the past few years. As a company with over 27- years of public company performance, we pride ourselves in our ability to perform across cycles.
We structured our business with complementary yet diversified strategies to help manage against volatility while enabling us to continue providing solutions for our partners and durable returns for our shareholders. For instance, our 2019 partnership with CoreVest solidified our presence in the business purpose lending market and has to date far exceeded our expectations, both quantitative and qualitative. The investments we've created in business purpose lending helped to turbocharge the modernization of our investment portfolio. We are now a leader in both single-family rental and bridge lending, with the ability to offer our clients a breadth of product options as their needs evolve. Despite the rapid rise in interest rates, we have seen a continued uptick in demand from BPL borrowers and a desire for additional products that address their evolving needs. This is why we're very excited today to announce the acquisition of Riverbend Lending.
Riverbend is a leading bridge lender that provides financing to experienced real estate investors who acquire residential and multifamily transitional properties. This acquisition is a step forward in solidifying our market-leading position and reflects our conviction around the strength of our business purpose lending platform and its prospects for future growth. Housing inventory remains at historic lows, most notably the inventory for turnkey housing stock, which eliminates the execution risk of making a home move-in ready for prospective home buyers. As a reminder, our bridge loans carry a short duration, typically 12-18- months. They generate current income, and they have conservative leverage points, all compelling traits for investors in today's market. Following the closing of the acquisition, Riverbend will be integrated into CoreVest and will add incremental scale, geographic footprint, and its client network to CoreVest's existing platform.
Our team at CoreVest has done a remarkable job scaling the business into the market leader it is today, and we remain committed to continuing to grow organically through product development and expansion of our client base in a market that is maturing but remains fundamentally fragmented. The current macroeconomic backdrop provides an opportunity to lean in further to our BPL business, and Riverbend, an emerging leader in its own right, represents an important step towards furthering these growth plans at a safe but enhanced pace. Riverbend is led by a phenomenal team that we are excited to have join the Redwood family. I'll let Dash go into more detail around the transaction, but I wanted to emphasize how it fits into our playbook in positioning our platform for the long term through incremental scale, best-in-class products, and attractive investments for our portfolio, all of which drive value for shareholders.
Turning to our investment portfolio, it was a big contributor to our book value stability in the quarter despite severe moves in many asset classes. It bears repeating, our portfolio is different. As we have long emphasized, our investment portfolio has been uniquely constructed over time with assets that take a view on housing credit fundamentals and are less sensitive to some of the whipsaw moves we see in the interest rate markets. Our outlook on housing credit remains strong, given rising home equity, low unemployment, and record low housing inventory. Volatility leads at entry points, and we will continue to opportunistically add to our portfolio where we see strong return potential. Our residential business, a foundational piece of Redwood's core strategy, established itself as a true leader in the space over three decades with its product offerings, speed to purchase, securitization, and distribution.
This leadership, set on top of prudent risk management, has set our residential team apart both over time and particularly in the most recent quarter, as we were able to quickly and efficiently distribute our fixed-rate loan inventory as mortgage rates rose dramatically. Because of our positioning, we were able to continue to lock loans competitively throughout the quarter while others stepped back from the market, resulting in our residential lock volume declining only 7% from the fourth quarter of last year versus industry-wide projections of a 25% or greater total decline for the period. We did this while preserving our gross margins at levels near our long-term historical range. Suffice to say, we're extremely pleased with how our residential business performed relative to what we suspect was one of the worst quarters for the industry in many years.
As Dash will touch on, our ability to refresh and expand our offerings earlier this month further demonstrates our leadership and ability to address the constant evolution of consumer needs. I'll now transition to RWT Horizons, the venture that we launched in early 2021, which has become a crucial part of our overall investment strategy. In about 14- months, we've made 21 investments in 18 early-stage fintech and proptech companies that have a direct nexus to our business and are innovating across multiple facets of today's housing market. These investments have put Redwood in a unique position to be a first call for many technologists looking to turn their innovations into thriving business opportunities. Already, we are seeing the progress of this initiative, which has begun contributing to the bottom line well ahead of schedule.
At quarter end, we had $25 million of capital committed to our Horizons investments, and two of our smaller investments completed follow-on raises at significantly higher valuations during the first quarter. In April, another one of our early Horizons investments completed a new funding round that is expected to result in a pre-tax gain on our investment thus far of approximately $10 million. We expect to recognize that income as part of our second quarter GAAP earnings. Before I hand the call over to Dash, I'd like to reiterate that current markets offer important opportunities for us to further differentiate our business, particularly as we position Redwood for new chapters of growth. While each of our business lines address different facets of the housing market, taken together, Redwood offers shareholders a comprehensive and highly durable non-agency strategy that cannot be easily replicated.
With that, I will turn it over to Dash, who will take us through the operating businesses and our investment portfolio.
Thanks, Chris, and good afternoon, everyone. As Chris mentioned, in a quarter characterized by substantial volatility, Redwood delivered solid financial results, supported by disciplined risk management and uniquely diversified revenue drivers, now further enhanced by the addition of Riverbend to our franchise. As Chris mentioned, we believe this is a great acquisition for our company and another step forward in solidifying our leadership position in BPL. Founded in 2017 by principals with whom we have had a long working relationship, Riverbend has established itself as a top financing provider to sponsors seeking to redevelop and sell both single and multifamily properties. Their product suite is highly complementary to CoreVest's unique mix of bridge and SFR lending products. Riverbend lends in 33 states with a particularly deep footprint in California and the Pacific Northwest, fertile territory for growth in BPL lending.
The platform originated $1 billion of loans over the 12- months ended March 31st. With a loyal client base, we believe we can serve even more deeply with our full complement of loan products. Riverbend has historically originated for sale, developing deep distribution channels and keeping a portion of their economics on the run in alignment with their whole loan buyers, a valuable distribution channel that we intend to utilize going forward. Brooke will comment in a moment on the acquisition's expected accretion to our earnings over the near to medium term. We look forward to working with the Riverbend team and welcoming them into our family of companies. As Chris referenced, momentum and demand for business purpose lending products has remained strong even with the move higher in benchmark rates.
CoreVest delivered another quarter of record volumes in Q1, funding $920 million of loans, up 25% compared to Q4. The first quarter's funded volumes were split close to evenly across term and bridge products, with an increase in multifamily across both asset types. Across both single and multifamily, we estimate a total addressable market for BPL of approximately $100 billion. A powerful statement as to how many potential BPL borrowers remain underserved. We get asked frequently about competition in this space, and while certainly the past few years have shown an increase in the number of market participants, CoreVest continues to set itself apart with its product suite, speed of service, and deep client base, all strengthened with Riverbend coming on board. BPL's first quarter mortgage banking results reflect robust growth in origination fees, offset by the impacts of spread widening since year-end.
In keeping with volume trends, fee revenue grew 25% during the quarter, and we were able to distribute over $300 million in whole loans prior to much of the market volatility. While continued spread widening through quarter end is estimated to impact execution on our SFR loans and inventory, we believe the market has begun to find its footing, particularly for loan products with compelling credit attributes, including cross-collateralization and extension risk mitigated by maturities more analogous to fixed rate CMBS loans. BPL assets, both bridge loans and subordinate SFR securities, remain a growing part of our portfolio capital allocation and contributed to the stability of our book value amidst the volatility. We frequently refer to our investment portfolio overall as one that is hard to replicate, and this remains the case today, both in terms of credit quality and value stability in choppy markets.
Over 70% of the investments in our portfolio are organically created, for which we control the credit process from day one and have held the securities for the long term. These include the subordinate bonds issued off our residential and SFR shelves, whose loans have an average seasoning of over four years, with delinquencies now trending consistently around 2%, reflective of their high quality underwriting and the substantial additional equity that has built up through amortization and home price appreciation. This durability of our investment portfolio also applies to the recent backup at benchmark rates. The expansion of our housing thesis in recent years, most notably into BPL assets and securities backed by reperforming loans, has meaningfully changed the convexity profile of our books and reduced underlying extension risk.
Our BPL investments consist of shorter duration, predominantly floating rate bridge loans, as well as securities backed by call protected cross-collateralized SFR loans with a five to 10-year term. Our RPL securities, predominantly our SLST securities structured in partnership with Freddie Mac, represent close to 30% of our portfolio's capital allocation and are backed by loans seasoned 15- years or more. The SLST securities we own were originally underwritten to single-digit prepayment speeds, with actual performance significantly outperforming modeled expectations due to both natural housing turnover and credit curing of the underlying borrowers. Due to their seasoning, our subordinate credit investments overall now represent a thick percentage of their respective capital structures with stable credit profiles, able to sustain the potential slowdown in HPA as a result of the rapid increase in borrowing costs.
While certain parts of our investment portfolio naturally underperformed during the quarter, most notably CRT, this was partially offset by our interest-only securities, including Sequoia MSRs, that outperformed into the interest rate backup. The market for new issue securitizations was challenged during the first quarter as credit spreads began to move in sympathy with benchmark rates. We often comment on the importance of having both well-established securitization shelves and a deep network of whole loan buyers that values our track record of quality underwriting. The first quarter was no exception, but we completed one Sequoia securitization early in the first quarter, backed by approximately $700 million in loans, achieving attractive execution. The remainder of our distribution was in whole loan form. A durable whole loan sales strategy requires end-to-end coordination across the business, a hallmark of both our residential and BPL platforms.
Collectively, during the first quarter, we sold over $2 billion in jumbo and SFR loans to a broad array of institutional investors, many of them repeat partners attuned to our high level of service. This allowed us to come into the second quarter with lower loan inventory, aided by our ability to process and fund loans more quickly than our peers. Ultimately, our distribution and execution allowed us to successfully move risk while others became weighed down by inventories, struck at coupons well below prevailing market levels. We have already distributed the vast majority of this type of production, including through whole loan sale executions in April, at levels we estimate to be significantly accretive to securitization. The speed of our execution remains a clear differentiator for both of our operating platforms. We often process loans three to five times more quickly than the competition.
This time decay increases market risk, which in this environment has, in our view, forced many competitors to reevaluate risk appetite and product mix, opening a window for us to continue gaining market share safely and profitably when the time is right. As always, we will evaluate the most efficient course of distribution and expect both securitization and whole loan sale to remain key parts of the equation. This distribution balance allowed our residential mortgage banking platform to log a productive quarter amidst unprecedented challenges in the consumer mortgage space overall. As Chris articulated, gross margins were maintained near our historical long-term range on near consistent volumes versus Q4. Purchase money loans in Q1 increased to 65% of locks, versus 59% in the fourth quarter.
The purchase money percentage has continued to increase into April, consistent with the strategic rationale behind our rollout earlier this month of new expanded prime products to complement our core offerings. These new offerings include a unique bank statement program with terms and underwriting criteria designed to meet the CFPB's qualified mortgage definition, among other things, an important driver of securitization profitability. Since the onset of the pandemic, the number of self-employed borrowers has increased substantially, and we believe these new programs will translate into better pricing for our sellers and more affordable loans for borrowers. With loan officers no longer able to rely on GSE refinance volumes and the industry well underway in rightsizing capacity, we see these new products as a key avenue to increasing our market share by providing additional options that loan officers can use to service their customers.
Reinforcing the unique diversity of our revenue drivers enterprise-wide, RWT Horizons just completed an important quarter in its evolution, including the appointment of a full-time chief investment officer. In addition to direct return on our investments, a critical benchmark for RWT Horizons' success is the impact of the underlying technology on our broader business. Building off of our momentum and leveraging its technology to put remittance information from Sequoia deals on blockchain, we were pleased to see Liquid Mortgage recently consummate a partnership with Canopy, another early RWT Horizons investment, to leverage blockchain in reducing redundancy in the loan due diligence process. We also recently completed a data sharing and licensing agreement with another portfolio company focused on providing analytics to the single-family rental market. This progress foreshadows real change to accepted practices and ways in which we use data to underwrite risk more nimbly.
While RWT Horizons is only a year old and speaks for only a small percentage of the firm's capital, we've established ourselves as a leading investor in the fintech and proptech areas, validating our thesis that technology entrepreneurs value strategic thought leadership, not just capital, in picking partners. I will now turn the call over to Brooke Carillo, Redwood's Chief Financial Officer.
Thank you, Dash. As Chris highlighted, we reported GAAP net income of $31 million or $0.20 per diluted share in the first quarter, representing a 9% overall annualized return on equity for the quarter and covering our $0.23 per share dividend. Most notably, our book value per share proved resilient, declining less than 0.5% to $12.01, leading to an economic return of +1.5%. Our book value performance for the full quarter was in line with the move we indicated through the end of January on our fourth quarter call, which is particularly notable given the historic volatility experienced during February and March.
Given the strong relative performance of our book value during the quarter, I want to begin by highlighting that the stability was attributable to the diverse characteristics and quality of the assets within the investment portfolio. Returns on our investment portfolio held up relatively well. We saw less than a $0.10 per share decline quarter-over-quarter in the investment fair value changes and other mark-to-market income that drive EPS. Our negative duration assets, namely our MSRs and IO securities, acted as a natural hedge and provided book value protection as interest rates increased significantly in the quarter and prepayments slowed, offsetting fair value declines from our Sequoia subs and Sequoia jumbo loans. Strong carry and continued strength in overall credit performance offset generally wider spreads and drove a 16% return on invested capital for the investment portfolio segment.
We have seen this resiliency continue into the second quarter as we currently estimate our book value is down 0.5%-1% in the month of April, bringing the total year-to-date book value estimated change to be inside of 1.5%. Same with the investment portfolio. We deployed $128 million of capital, with bridge loans representing about 50% of the total and home equity investments largely being the balance. We also made a $25 million commitment to an investment vehicle that serves the mission of providing quality workforce housing opportunities in key Bay Area urban communities. Delinquencies in the investment portfolio remain near post-pandemic lows. Portfolio LTVs have moved lower and home equity is at historic highs.
Moving on to our operating results relative to the fourth quarter, net interest income was up $3 million as we experienced a full quarter benefit of the investment portfolio deployment in Q4, specifically bridge and follow-on investments in Sequoia mortgage servicing rights. We received $8 million of yield maintenance payments on capital securities as underlying loan prepayments increased. This partially offset a $5 million decline on the quarter in accretion of our available-for-sale securities, given that higher rates and slowing prepayments impacted the near to intermediate prospects of calling those securities. In terms of our non-interest income, our mortgage banking activities net declined by $20 million collectively during the quarter as spreads widened for both securitization and whole loan sale execution and rate volatility increased throughout the quarter.
Relative to the fourth quarter, G&A decreased by $4 million, driven by lower variable compensation commensurate with our GAAP earnings, which led to a relatively durable efficiency ratio despite lower volume quarter-over-quarter. The residential mortgage banking segment generated a 10% return on capital during the quarter, which was unchanged from Q4 on similar themes. We saw continued pressure on our gain-on-sale margins as our pipeline was impacted by widening spreads and hedging costs significantly increased quarter-over-quarter. However, our operational excellence and conservative approach allowed us to maintain a lower inventory of loans than would be typical otherwise. Turning to our business purpose mortgage banking segment, as Dash mentioned, CoreVest had another record quarter for volume, up 25%, capitalizing on the momentum from late last year.
While fee income from Bridge was higher on the quarter, the single-family rental pipeline was more heavily impacted by rate, interest rate, and spread volatility. Despite the significantly lower contribution from BPL Mortgage Banking, the Bridge assets that are organically created from our platform were highly accretive to the investment portfolio, generating a 17% annualized economic return. Accordingly, we will continue to allocate more capital to bridge production, and the addition of Riverbend to our platform enhances our ability to do so. Following up on Dash's commentary, we expect the platform to generate attractive returns for our shareholders.
Given we do not expect to close the acquisition until later in the second quarter to obtain necessary change of control approvals, we expect the Riverbend platform to contribute between $0.15-$0.20 of earnings as a run rate by 2023, which translates to a mid-teens expected ROE inclusive of the full consideration paid for the platform. We maintained excellent strength in our capital and liquidity position during the quarter. We ended the quarter with over $400 million of unrestricted cash and $140 million of investable capital compared to $150 million at year-end. Leverage came down on the quarter from 2.4-2.1 times on lighter residential mortgage banking inventory I mentioned previously.
Looking across our debt maturities, we renewed facilities representing $2 billion of capacity in the first quarter, with only $550 million rolling later this year, and we maintain $2.3 billion of excess capacity in our loan warehouse facilities, which sufficiently addresses our financing needs. We also have no corporate debt maturities upcoming in 2022. We had a highly productive quarter as we renewed four residential loan warehouse facilities and initiated two additional lines. In business purpose lending, we renewed one facility, amended two others, and liquidity to finance our BPL production remains robust. A consistent theme across our financing activity is that we saw favorable terms, either through procuring lower cost of funds, increasing advance rates, or adding more product flexibility.
Throughout the quarter, we were able to seamlessly transfer $81 million of bridge loans to our first fixed-rate RTL securitization, bringing up incremental capital. As we move through the second quarter and 2022 more broadly, we remain on track with the long-term goals and objectives we laid out at our Investor Day last September. Near-term interest rate volatility is impacting the timeline given the significant repricing of all financial assets that's transpired under the new rate regime. While, of course, the environment is uncertain, we believe that our current capital and future earnings profile position us well to continue supporting business growth ahead.
Based on expectations for current returns we're seeing in today's market that meet our risk tolerance, we expect adjusted ROE for our business to range between 8%-12% in the near to medium term, and over time turn back to the 15% blended return we spoke about at Investor Day. We continue to exclude the potential upside from Horizons, other strategic investments, and any subsequent M&A from our ROE outlook. Looking ahead, we see potential growth in ROE to come from the same tools we've utilized in the past, including capital efficiency and operating leverage as our mortgage banking business has scaled. Our investment portfolio utilizes a modest 1.3 turns of leverage today, with opportunities to optimize in several key areas, including bridge and RPL.
Over 70% of our bridge portfolio is financed with warehouse debt, which we have the potential to improve through higher advance rate non-recourse financing structures. In addition to these, we see ROE potential from the fact that we have over $1.1 billion of floating rate assets, nearly 40% of which are owned for cash or financed with attractively priced fixed-rate debt, and a rising rate environment provides an earnings tailwind for our business. Furthermore, net of first quarter gains, there remains potential upside of roughly $2.15 per share in our portfolio through book value upside from discount securities as underlying performance continues to improve. With that, I'd like to turn it back to the operator to open the call for Q&A.
Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 is from Bose George with KBW. Please go ahead.
Hey, guys. Good afternoon. Actually, the first question, you know, just can you talk about where coupons are on, you know, the loans at CoreVest, and then just how you've kind of managed the risk with the big move up in, you know, in rates and spread widening, you know, relatively quickly this year?
Sure. Hey, Bose, it's Chris.
Chris.
I think, Dash and I will tag team this. You know, as far as the move up, you know, we were really deliberate to start the year in getting out ahead as best we could, of what seemed like a big rise was coming in rates, and obviously that occurred. You know, we moved our first securitization to the very front of the deal calendar for the year in residential. That turned out to be a very good decision because, deals have progressively priced worse since, right up through today. And we really were very intentional in leveraging our whole loan distribution.
You know, the thing about securitization, one of the reasons why we only did one during the quarter was because you need to go through an accumulation process and basically bulk up to get to a critical mass. With our whole loan channels, we're able to move risks more quickly and stay as close as we could to current coupon. That was really the story in the first quarter. You know, potentially others approached it differently, but I think we had about as good of an outcome as we could have, and it's positioned us, you know, really well going forward, even though we still expect a fair amount of volatility.
On the coupon side, Bose, you know, it obviously does vary by, you know, by product and overlay. For Jumbo, I would say coupons are probably in the low to mid-5s, maybe a bit higher right now depending on the specific product. For Bridge, they're still, you know, in the higher single digits. The vast majority of our Bridge book is floating rate, and so depending on the path of LIBOR, those rates would continue to tick up. For the term single-family rental, the five and 10-year product, it's higher- 5s, potentially touching 6%. We've had a bit of a rate rally here the past few days, but that's the general zip code for where coupons are right now.
Okay, great. That's helpful. Thanks. Just given the, you know, continuing volatility in the second quarter, can you just talk about, you know, sort of similarly managing risk or is it sort of the same kind of playbook in terms of, you know, more cash sales, et cetera?
Yeah. I think for now it's gonna be a similar playbook. You know, one thing I'll say is because we were able to protect book value so effectively in the first quarter, it's positioned us potentially to get a little bit more aggressive. You know, we'll see. You know, I think we, like most, are looking and hoping for some stabilization with respect to rates. We'll take whatever comes our way and you know, we continue to lock loans each day. You know, as the market sort of corrects, we plan to stay out ahead of it. I think it's gonna be a similar approach. I also do think we're through the worst of it. The market is correcting to Fed policy faster than ever.
I think that, you know, we get through another Fed meeting soon and hopefully, you know, we start to see some good opportunities to leg in further.
Okay, great. Thanks, and good job protecting book value this quarter.
Thanks, Bose.
Thank you. Our next question is from Donald Fandetti with Wells Fargo. Please go ahead.
Yes. I guess on your BPL Mortgage Banking, you know, it sounds like the margins were impacted by, you know, spread widening on the inventory. Can you talk about the near-term profitability of that segment? Also, can you talk about the gain on sale margin expectations, near term for the Residential Mortgage Banking?
Sure. For BPL, you're right. A lot of the story in the first quarter was just the move in spreads. You know, we were able to get a couple of large whole loan sales off at levels that we thought were accretive to securitization at that time and before, you know, the increased volatility set in. Spreads did continue to widen throughout the quarter. You know, we've adapted. You know, as Chris said, we're very nimble with our pricing and our rate sheets, and we think, you know, where we're currently pricing, particularly in the SFR book, the risk is certainly responsive to where we sit today. We are at really all-time wides from a spread perspective, particularly at the top of the capital structure for securitization.
That's why we're continuing to make sure we remain balanced between securitization and whole loan sale. You know, there is some real scarcity value in our mind to, on the SFR side, you know, the quality of that product. No one really else is producing it in scale. That's a lot of the reason why we've had really good success working with whole loan partners in addition to the traditional securitization route. You know, the other big thing about BPL margins is just, you know, really the emergence of Bridge over the past few quarters. You know, we had another record quarter for Bridge. There continues to be real macro demand and tailwinds for that product from our sponsor group. You know, Chris touched on it.
Those are great for fee generation, and you know, carry little to no actual duration. We continue to innovate on ways to finance those going forward, which will be accretive to NII and ultimately margins as well. Just the balance of bridge and the depth and of course, you know, onboarding Riverbend and the ability to, you know, add another $1 billion-plus a year potentially of production to the mix is really exciting for us. You know, we position ourselves accordingly from a product mix perspective. Of course, as Chris said, just the nimbleness of being able to reprice the risk as frequently as we're able to.
On the Jumbo side, you know, we were really pleased with where margins came in, you know, in Q1, you know, essentially at the low end of our historical range. We do see them going forward consistently there this quarter. You know, a lot of it will, you know, be indexed again to just the strength of a whole loan distribution. The other point is, you know, when you look at securitization execution in Jumbo, you know, it really is sort of a tale of two cities. There's still a lot of our competition that is trying to flush out the lower coupon mortgages, which obviously have a very, very different convexity profile than the current coupon, you know, production that we're able to flow in.
You know, we talked in the prepared remarks about how efficient we've been at really clearing out the lower coupon. When we think about securitization in jumbo or whole loan sale for that matter, it's important to recognize that, you know, the product that we have is a very different cash flow profile for investors, whether it's AAAs or whole loan buyers. You know, that is a very helpful buttress for margins, you know, particularly given what rates have done so quickly.
Got it. I have a quick accounting clarification for Brooke. Brooke, let's just say on your residential loan portfolio, because you fair value the loans, what liabilities do you also fair value? Is it only if it's securitized, Sequoia, where you're fair valuing the loans and the debt, and so that leaves loans that aren't securitized, you would fair value, but there's no offset from the debt, financing. Do I have that right?
Yeah, the vast majority of our residential securitizations, we fair value both, under the FVO election. Just in terms of the impact of fair valuing these, you know, all of the hedge loss or benefit is also captured within the mortgage banking that flows through our GAAP P&L as well.
Okay. Thank you.
Thank you. Our next question is from Steve DeLaney with JMP Securities. Please go ahead.
Hey, thanks for the question and congratulations folks on just an amazing performance in what was a crazy market across the entire mortgage universe. Props to the balance sheet, props to you guys. A lot of things have been covered. Riverbend, and I'm curious about the bridge. I think a great addition, obviously. The floating rates, and those products generally. Well, I guess it depends on your securitization and whether you do gain on sale, but obviously the commercial mortgage rates on those floating rates, they don't do any mark to market when they finance with CLOs. Maybe that's a question in its own right, for you guys on when you think about bridge going forward.
What I was really gonna ask, Dash, is, you know, you obviously have your kind of your resi bridge, your renovate resale product. You've probably got some small multifamily. Does Riverbend also move into other small balance commercial property types as well, given their geographic breadth, et cetera?
Yeah, it's a great question, Steve. You know, in general, what's really exciting about the acquisition, obviously besides the people and the cultural fit is really two things. Number one, you know, the products that Riverbend is in and the geographies where they're deepest are areas where we are just not as deep. Sort of the first order accretiveness is just the products that they have, you know, very little overlap in product type and borrower, frankly, to CoreVest current footprint. Geographically, they're just deeper in areas that we think are really attractive. The second order effect, which frankly is not included in some of the accretion numbers that Brooke articulated, is being able to serve that client base more deeply that Riverbend brings to us.
You know, they are doing some smaller ticket transitional multi. You know, we would expect as a combined enterprise that would continue to grow. There's a ton of demand there from borrowers and some really attractive opportunities. But there's other stuff as well. As you know, CoreVest bridge platform is very unique in terms of the products that it focuses on versus maybe the rest of the traditional lending community build for rent, you know, lines of credit, things like that. Just products that serve different needs for sponsors. Pushing those products out through the Riverbend network in addition to the single-family rental, we think is gonna be particularly accretive and exciting. The direct answer to your question is, yes, we would expect more small balance multi.
Elsewhere in commercial, you know, probably not. You know, that's an area that Riverbend already is in, and we would expect them to do more of now.
Steve, I'd also add, these are great portfolio assets.
Yeah, that's what I was thinking from a risk management standpoint. Yeah.
These BPL investments are a big reason, you know, why our book has been, you know, so resilient with this huge run-up in rates. That's, you know, Riverbend is a great whole loan and distribution platform today, but having the opportunity to put more of those assets on our balance sheet is pretty attractive.
Yeah. I mean, just on my initial comment about CLOs, I mean, you've been selling a lot of that product on the bridge loan product. You know, do you envision that if you were to do that at scale on your balance sheet, do you envision that that would ultimately, you know, involve a non-recourse securitization structure around that on the financing side?
Yeah, it's a very good point, Steve. So we've, you know, we have balance sheeted most of our bridge loans to date. We have about $1.2 billion of loans on balance sheet. We did do our first bridge securitization back in the fourth quarter in October, and it's certainly been a highly accretive fixed rate financing that we continue to have revolving capacity to place more of those floating rate loans as we've been originating an increasing portion of our overall mix within bridge. One thing I would note too, you know, 30% of what Riverbend has originated and 30% of what we did too in the first quarter was on the multifamily side. There's a lot of, you know, accretive type of non-recourse financing structures there that we continue.
Sure
to represent in some of that capital optimization that we referenced in our prepared remarks.
Got it.
You know, we do fair value to just, to circle back to your point earlier, we do fair value all of our bridge loans. They do sit at the rate and have been, as Chris mentioned, a very nice ROE earner for us.
Great. Thank you all for your comments.
Thanks, Steve.
Thank you, Steve.
Thank you. Our next question is from Douglas Harter with Credit Suisse. Please go ahead.
Thanks. Can you just talk about the competitive dynamic in the various origination mortgage banking businesses, kind of, you know, how competitors might have fared in the more volatile period and whether that puts you in a better competitive position or the same competitive position kind of going forward?
Yeah, I would say overall, we expect to be in a much better competitive position, particularly in residential. You know, what's happening in residential is there was a lot of, you know, new issuers, many of them originators, who entered the space, you know, very recently. Obviously, you know, with this type of volatility and such a rapid rise in rates, you know, the outcomes for the sector in the first quarter were very challenging. You know, we would expect some degree of shakeout candidly. You know, we see it every cycle.
We've been in the business for many, many years, you know, I think the number of issuers will decline significantly over the course of the next few quarters, certainly over the next year, which would really help us from a competitive standpoint, in resi. BPL, it's still a very nascent space, you know, we've started out as the leader in the space and we continue to be. With the acquisition of Riverbend, you know, to some extent, we're just expanding our footprint. I think, you know, a lot of people are attracted to the space, but there's just so much to do. You know, we think it's a $100 billion annual origination market across products, and so there's just significant upside there.
The loans you know take a lot of skill and strong relationships to do well, and those relationships have proven to be very durable from a client perspective. You know, we feel very good about the competitive landscape. If anything, these difficult periods really help us in just solidifying you know our place and you know we certainly expect that to play out over the course of the year.
Thanks.
Thank you. Our next question is from Stephen Laws with Raymond James. Please go ahead.
Hi. Good afternoon. Thanks. Brooke, question on the potential securitization call gains. Can you talk about the current environment? You know, I don't know if it's prepayment slowing, so maybe some deals are paying down more slowly or if it's the market that's looking to refinance some assets. Can you talk about the outlook for securitization call gains and maybe timing on how we should think about those rolling into the numbers?
Yeah, it's a good question. We put out updated disclosure on the amount of call activity that we could see. We still have over $2 billion of additional loans to become callable that we're modeling in the next two years. We have just given that we've seen consistently higher prepayments and the kind of environment that we're more broadly steering into, I think we've pushed out some of the timing for when we could realize those calls. We have about $600 million of loans that we think would become callable through the end of the year. There's still a really healthy potential in terms of book value upside of $0.34.
When we look at, you know, the weighted average coupons that are underlying those near-term calls are still, you know, competitive with where we see current coupons today. I think we're just monitoring the opportunity a little bit more cautiously than we have in the last few quarters. With that, you know, we did have about a $5 million decline in our net interest income from the accretion on those calls, and that is something that you could continue to see decline over the next one or two quarters as we push out the timing of those gains.
Great. Thanks, Brooke. Chris, kind of looking bigger picture, we've covered most of my questions on the BPL side. As we think about the residential side, I know Dash mentioned some bank statement loans. You know, and in past calls, I think we've talked about kind of the expanded credit or near prime and maybe some home equity products, just given the home price appreciation. Can you talk about some other products that you guys maybe think there's an opportunity in or what you're seeing on the residential side of the business instead of the BPL side?
Sure. Well, you know, certainly we've been very interested in home equity, and it's something we've talked about in past quarters. I think we'll have a better update when we talk again in the summer, but that's an area where the portfolio has been very focused. We did just relaunch, you know, our product suites sort of to the market in April on the residential side. We refreshed Choice and then, you're right, we did launch a bank statement product. One of the interesting things there is, you know, we're focused on QM and loans that meet the standard.
We've spent a lot of time with various stakeholders to make sure that those are structured appropriately, with the right number of months of verification and things that we need to securitize those well, because we think that the QM product will really boost the liquidity of the space and how those execute in the PLS markets, which should benefit everybody. We also, you know, have been focused on hybrids and ARMs, just really, you know, expanding the playbook and being responsive to the market. I think we're really in a good position, you know, in resi and we're getting a great response rate from our seller network. There's tremendous interest in training and learning about the products.
You know what the market really needs in residential is just some rate stability at this point. When you look at the TBA markets. Certainly, when you look at CRT and then obviously, prime jumbo, it's just hard for investors to know what the right price is to pay for bonds. As long as that dynamic's in place, some of these rollouts will take time. The interest is there, and we certainly feel like we're leading in the space. I think we're gonna have a lot of really interesting and potentially surprising results, positive results, you know, from these rollouts to talk about in the coming months. We're still in a...
You know, the market's still in a spot where it just really needs some guidance from the Fed and just to know where that current coupon should be. Is it 5.5? Is it six? Is it higher? Those questions will be answered in the coming weeks and months. I think you know what we're investing in now is just the products and the infrastructure to really continue to take share, and that's one thing that we're very proud of in the first quarter is when you look at, you know, our lock activity, it was very similar to the fourth quarter, where, you know, the market declines we expect to be very significant. Hopefully that keeps up and we can continue to grow the business.
Helpful color. Thanks, Chris. Appreciate it.
Thanks, Stephen.
Thank you. Our next question is from Eric Hagen with BTIG. Please go ahead.
Hey. Thanks, guys. I'm jumping on a little late here, so thanks for squeezing me in. A couple here. In the CoreVest SFR portfolio, can you say how much rental increase is embedded in the value of the assets, just roughly? And then do you guys see a risk that lenders adjust haircuts or margins on warehouse loans, or do you guys feel like there's enough supply of capital out there and leverage across the system is, I guess, stable enough where that really isn't an issue right now? Thanks.
Thanks, Eric. I'll take your SFR question and let Brooke address your question on the warehouse piece. In terms of how we, I mean, to move it to the front of the funnel, you know, when we actually size and underwrite SFR loans, you know, we are pretty conservative about how we think about rents. We tend not to think about rental increases as part of the underwriting or loan sizing picture. You know, when we size loans, you know, there's obviously the increases that we've seen have certainly been tailwinds to value, but they're not part of, you know, the base underwriting process, you know, for us.
The portfolio has performed really, really well, frankly, and you know, it doesn't need to see the rent increase that we've seen the past few years to have hung in there. You know, our average LTV is still in the high 60s. So it's clearly part of, you know, how a lot of our sponsors think about things. You know, particularly with higher rates, just making sure that that math, you know, still pencils, you know, for the combination of home price appreciation and rental growth and just what's going on with, you know, with cap rates in general and single-family rental. From our perspective as a lender, you know, we're underwriting to get paid back, right?
You know, we don't tend to price in rent increases and, you know, into that analysis, you know, for the SFR book. Then, Brooke, do you wanna.
On the financing front, Eric, it's a great question. I think, you know, we had a lot of good anecdotal evidence around this in the first quarter because we did have $2 billion of facilities that we renewed. I think it's probably a combination of, yes, we do feel good about liquidity in the system from our financing providers. I think also just Redwood specifically probably speaks to the strength of our capital base, especially our risk performance during this time and our ability to have structured our debt in the way that we have, we think, has significantly protected us in environments like today. You know, we're sitting with about, you know, over a third of our financing is committed.
We have a significant amount, 100% on the business purpose lending side that's financed with non-marginable debt that there's continued appetite that we see from our financing providers. In general, over 80% of our debt is either non-marginable, term non-recourse or both. We have considerable excess capacity today, so about $2.3 billion. I think as we sit today, we just feel really good about the position of our book as it relates to how our debt is structured. Overall, our leverage continues to be very low and has trended downward, as I mentioned in our prepared remarks.
That's helpful. Thank you, guys, very much.
Thanks. Thanks, Eric.
Our next question is from Kevin Barker with Piper Sandler. Please go ahead.
Good afternoon. Thanks for taking my questions. I just wanted to follow up on the $10 million pre-tax gain that you're recognizing from an investment in RWT Horizons. Can you give additional color on, like, what your cost basis was on that investment? Was it an exit of a business? See if there's any other investment that you see out there that could be monetized.
Sure. You know, I don't think that we have or will provide cost basis detail at this time. What I can say is, it was one investment, and you know, it was an approximate $10 million pre-tax gain. The total allocation or the total deployment Horizons at quarter end for all of the investments was $25 million. I can confirm it was a single investment of the total. You know, it was another valuation round, so it was not a monetization. You know, we didn't expect necessarily to start seeing these types of, you know, rounds this quickly. That's been a very positive development and really validated the investment thesis, frankly, on why we started with Horizons.
A reminder, it's sort of a dual benefit, you know, you know, we expect to make money on these investments, certainly, but we're also supporting with capital technologies that have an ability to disrupt our sector. If our sector is gonna be disrupted, we wanna be the disruptor, and the person supporting, you know, those initiatives. We've been very picky and very selective about the partners that we work with, but they all do have a nexus to what we do. We think that the frankly, the return potential here is very significant and there's great potential option value to growing this portfolio as part of our broader investment strategy.
Okay. Maybe to follow up on one of those investment strategies, Liquid Mortgage. You did a securitization on the blockchain late last year. Could you just provide any color? Are you looking to do further securitizations on the blockchain with Liquid? Is there any third-party interest in potentially executing, you know, securitizations on the blockchain with Liquid?
Yeah. Kevin, it's Dash. We have done since the first Sequoia deal we worked with Liquid Mortgage on, we've put all subsequent Sequoia deals on there. We have a number of them, I think close to half dozen at this point, you know, that leverage that technology for remittance information. You know, we are working as well, as you might imagine, in parallel for the core of our securitizations to leverage the same technology. We think that'll be an exciting development for that part of the market.
The second answer to your question, yeah, definitely, you know, a big part of the value add for the partnership is, you know, when we sort of put a stake in the ground and do something other people certainly take notice, and we've been certainly actively working with Liquid to, you know, help them engage others. You know, from our perspective, the more adoption for stuff like this, the better. As we've talked before, having the remittance information on blockchain really is just step one. You know, I talked in my script about the partnership with Canopy, which we think will meaningfully evolve how due diligence works for whole loans. We're still in the really early innings here. Yes, from our perspective, you know, it's about the ecosystem and the more we can help other people adopt in, we think the better things will be.
Great. Are you seeing additional demand from investors for, this type of delivery mechanism, just given the performance that you've seen from the Sequoia platform?
Yeah, we are. We've gotten a ton of interest. The Liquid Mortgage platform is just you know, it's a pioneering platform, and I think the intrigue about how transformational you know we can be to the securitization space is really exciting Sequoia investors in particular. We get a lot of feedback and interest you know people like yourselves just curious about what the next round will look like. In quarters like the first quarter, that's not gonna be the headline. The headline has been the rapid rise in rates and you know the associated bond math with fixed income investments. That's certainly on investors' minds.
Folks that have been with the platform for many years know our bonds, know Redwood, you know, they're really looking past that and thinking about, you know, how these innovations are gonna impact the shelf. Those are really great conversations to have. I'd say the excitement level around what Liquid could do has never been higher, frankly.
All right. Thank you for taking my questions. Have a good evening.
Thanks, Kevin.
Thank you. Ladies and gentlemen, there are no further questions at this time. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.