Redwood Trust, Inc. (RWT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the State of the Housing Market, Redwood Trust, RWT. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jancy Yang. Thank you. Please go ahead, madam.

Great. Thank you. Good morning, everyone. Thank you for joining us today. This is Jancy Yang from the Corporate Access Team at Morgan Stanley. This call is part of a series of state of real estate webcast that we've posted. Throughout the call, you can type in your questions via the webcast link in the box, and we'll go through them throughout the session. For important disclosures, please see the Morgan Stanley research disclosure website. And with that, I'll pass it over to Richard Hill, our Head of U.S. CRE Research.

Hey, good morning. Thanks for joining us. As Jancy said, my name is Richard Hill. I'm Head of Commercial Real Estate Research at Morgan Stanley, where I'm responsible for equity debt and macro property research. I'm joined by my partner, Jim Egan, who's Co-Head of Structured Product Research at Morgan Stanley and our Chief Housing Strategist. We are very pleased to be joined by the Redwood Trust management team. I've known Redwood through the course of my career across multiple different lives in my career, and we're very excited for them to give a boots on the ground view of what's happening in the housing market right now. So before we jump into questions, maybe I can just turn it over to Redwood to quickly introduce each of the speakers on the call. So Lisa, maybe I can turn it over to you, and I'll start with you.

Sure. Thanks. This is Lisa Hartman. I'm the Head of Investor Relations here at Redwood.

Good morning, everyone. This is Chris Abate, Redwood's CEO.

Good morning, everybody. This is Dash Robinson, Redwood's President.

Hi, this is Beth O'Brien, I'm the CEO of CoreVest, which is the Business Purpose Lending subsidiary of Redwood.

Hi, this is Collin Cochrane. I'm Chief Financial Officer.

Well, great, guys. Again, thank you for your time today. I'm going to jump right in with questions. Chris, I'm going to start with you. I'm familiar with Redwood Trust, but I'd love to hear your elevator pitch on who Redwood Trust is. Maybe you can just talk about how the company looks like today? And how has it evolved over time?

Sure. Thanks, Richard. On behalf of the management team here, we certainly appreciate the chance to discuss our business today. I'm not going to walk through slides, but do want to mention that we have an investor presentation on our website from August, so it's fairly recent. In terms of our elevator pitch and how the company has evolved, I'll start by saying, during the past 25 years, we've leveraged our approach to housing finance to lead the market and offering compelling products that result in attractive returns. We've managed the business through many cycles and the company has evolved. The current crisis is no exception. But what hasn't changed is our focus on delivering attractive risk adjusted returns to shareholders through capital appreciation and a growing stream of earnings and dividends. We are the only mortgage REIT with 2 best-in-class securitization issuance platforms. We have a diverse set of revenue streams that cover the entire residential housing market, which we believe is a very compelling aspect of our business that enables us to meet the evolving financing needs and demand for credit exposure for investors as housing demand trends shift within homeownership, single-family rentership and multifamily dwellings. Our corporate mission quite simply is to help make quality housing accessible to all Americans, whether rented or owned. To put it simply, we make money in 2 ways: through investment income, which flows through our REIT; and through mortgage banking income. We generate investment income through investments, primarily in our own private label securities, backed by jumbo residential and single-family rental mortgages; through direct investments and loans, such as bridge loans as well as through third-party investments in multifamily reperforming loans and CRT securities. We generate mortgage banking income from 2 leading operating segments: our Residential Lending and Business Purpose Lending platforms. These businesses not only generate organic assets for our own investment portfolios and fee generated income from our mortgage banking activities, but also act as a reliable source for loans and high-quality credit assets that others can't efficiently source themselves. And that summarizes where we are today, but it's been quite an evolution for us. As some of you know, our focus has always been squarely on investments backed by residential housing, but our business model has evolved. Redwood built its reputation in the jumbo residential mortgage market through a residential conduit and private label securitization platform, which some of you know is Sequoia. We entered into a significant transformation in 2018 when we broadened our strategy into what we now call Business Purpose Lending. This primarily consists of single-family rental and bridge loans. Our investment thesis entering this market was based on increasing demand for quality homes by renters in addition to homeowners. We observed that the Business Purpose Lending market was very fragmented and saw an opportunity where we could play a role in institutionalizing this growing space. Our partnership with CoreVest that we solidified last year brought us a very seasoned management team with deep experience in the SFR industry and a leading single-family rental securitization platform. In fact, we literally just closed our third SFR securitization deal of 2020 today. It can be found under the ticker Capital 2020-3. As we evolve, technology is playing an increasingly important role in our business, something we want to talk about today. Compelling attribute of the CoreVest business is their sophisticated use of technology to source and process loans. Additionally, a major initiative underway and our residential team is upgrading our loan systems and transitioning towards a more automated underwriting and approval process that our sellers currently experience for conventional loans, that go to Fannie and Freddie. So that summarizes a big part of our transformation story. Before we get into Q&A, I think it's important to provide listeners with a brief summary on how we responded to the impacts we saw from the COVID pandemic and where our business stands as a result. Since the beginning of the second quarter, we've repositioned and strengthened our balance sheet by materially reducing leverage and marginal debt. We generated significant liquidity without raising any dilutive outside capital, and we've not raised any equity capital during or as a result of the crisis. We've transitioned the vast majority of our financing to nonmarginable facilities, including some nonrecourse facilities. Our strategic initiative of recasting our debt towards such nonmarginable and nonrecourse programs is now essentially complete. At June 30, on a pro forma basis, we announced that our securities repurchase debt stood at about $70 million or 5% of total recourse debt. And our recourse leverage ratio was down to 1.6x, and then 90% of that's actually nonmarginable. As a result, we've been able to safely reduce the portion of cash we hold as risk capital and have a substantial amount of money to invest, certainly into our platforms. In terms of how our view has changed throughout COVID, I think the impact of the pandemic on the housing sector has played out far better than many feared to this point. Forbearance and delinquencies have been relatively manageable. Our delinquencies have trended below the averages reported by the MBA and Black Knight. And over the past 2 months, inquiries and forbearance requests have trickled to essentially 0. So these are really positive indicators. Demand for housing credits, specifically in the securitization markets took a pause, as many know, in March and April. But we began to quickly see that interest resume, frankly, faster than we anticipated. For example, we went to market with a single-family rental securitization in May and in residential securitization in June. So demand in the space and certainly in the home loan space has been relatively stable and positive. On the financing side, demand for mortgages and SFR loans has also been robust. We're seeing strong indicators -- industry indicators, which we think are positive for our business. For example, recent housing data indicates a continued shortage of supply to meet a growing demand for detached single-family homes. It's been a key story through the crisis. The MBA reported August new home mortgage applications increased 33% year-over-year, and estimated new home sales were up over 11%. Home price appreciation, a big factor in what we do is -- has also been strong, I think, up 11% or 12% year-over-year as of August. And as many know, the story on mortgage rates has garnered a lot of attention. Borrowers have increasing purchasing power. Rates have been, on the residential side, below 3% since August, significant decline year-over-year. And I think as many of you know, as recently as Tuesday, the Fed's commentary more or less indicates that rates are going to go higher anytime soon. So while we're not out of the woods from the crisis, given where we see our pipelines in both of our businesses as well as how our balance sheet is structured, we think we're in a really strong position to grow in the coming quarters. So Richard, that was kind of a long elevator spiel, but I'll turn it back to you.

Yes. That's perfect, Chris. So thank you for that intro and elevator pitch, as you and I both said. I want to dig into some of those themes that you discussed. I'm going to turn it over to Jim Egan now to ask a question about the housing market. So Jim, the floor is yours.

Sure. Now I think a lot of investors would like to understand your perspective on the housing market. And Chris, I think you did start to hit on this a little bit. The sentiment in our discussions with market participants can best be described as bullish. And I think what we'd like to know is, how has your view changed throughout COVID-19? And what do you see as the biggest opportunities and risks going forward?

Jim, it's Dash. I'll take that one, and then let Beth supplement and weigh in as well. Thanks for the question. I think it's -- it really is the key question because from our perspective, over the past 6 months, housing has been a real winner here, as it relates to overall performance. I'm going to touch on the housing market and housing credit, which are related topics, but as you know, are not necessarily the same thing. But it really has been striking out if you compare this crisis to the one the markets endured 12 years ago, where housing sort of led the crisis. Housing has decoupled from a lot of the other challenges we've seen broadly in the economy here really for the better. And I think there is a couple of reasons for that: one is macro, which Chris touched on, which is rates, which I'll get into a bit more in a second. But some of it is a little bit more, potentially longer term and structural, as it relates to the nature of demand for housing and what parts of housing stock, geographies, et cetera, consumers are most interested in acquiring or living in and renting just based on where we are with the pandemic. And I do think those nuances underscore the importance of the balance in our business model, particularly over the past year. So with the CoreVest acquisition and with the complementary businesses we run with our jumbo and BPL businesses, some of that really shines through some of the opportunities that we see. Firstly, on rates, as Chris said, the Fed is not really making the market read too many tea leaves in terms of their intentions over the next few years. The expectation is that rates will be where they are for the next several years. Powell was pretty clear on that a few days ago. Also late in August, he made some very interesting remarks around the Fed's willingness to led inflation run over 2% for a period of time, given the type of year it's been. And so I think the Fed has been fairly transparent in its intentions around rates, and that's probably something that the market can probably rely on because it will have a positive impact on borrowing costs across the board and in particular on housing. As Chris said, conforming rates are still below 3%. They've ticked up a few basis points here this week, but they're still basically at record lows, since they've been tracked over the last 40 or 50 years. Jumbo rates are also quite low, not as low as conforming, which is an interesting dynamic for us because over the past several years, jumbo rates have been either on top of or through conforming rates. And for a variety of reasons, including to Chris' point, just how the jumbo market or the non-Agency market in general, since it was not supported explicitly with stimulus over the past 5 to 6 months, there's still -- while the jumbo market has healed significantly over the past several months, there's still a lot of room to run there in terms of the potential for jumbo rates to converge on conforming rates. And from our perspective, within that dynamic is potentially a massive incremental refi wave, if jumbo rates move closer to conforming. Clearly, jumbo speeds have picked up here, but there is a very large production opportunity for us in terms of our loan acquisition strategies in jumbo, if jumbo rates do converge more on conforming. So that's sort of a macro commentary around rates, which obviously have had an impact across all parts of the financial market, but housing in particular. But as I mentioned at the top, there are some particular sub pockets of housing where we've seen a real increase in demand, which have more of a direct nexus to our business strategies. The first thing I would say around Business Purpose Lending, and I'll let Beth expand upon this as well, it has been striking how the demand for rentership has not only grown, but also evolved this year. When we decided to get into this business a while back, it was based on a thesis that the rentership -- the ranks of rentership in America were growing and evolving and strengthening in terms of the nature of what the typical renter looks like, more and more its families that are stickier renters that want single-family detached homes, that want to live in those homes for a longer period of time than a traditional tenant in the garden-style apartment, and a lot of things that have happened this year have made those dynamics much more acute, not only in terms of how the rentership ranks have grown, but also the nature of demand within the existing rentership community, particularly around the migration from multifamily into single-family detached. And then just really striking somewhat reversal of probably where we were 9 months ago around just demand and supply dynamics within urban settings versus suburban or exurban settings. If we were sitting here in January and February, we'll be talking about an acute lack of supply in Central Business district areas, people wanting to live closer to work, walk to work, all those dynamics are completely on their head right now, obviously, with working from home, things of that nature. And in our view, like I said, is that some of that is definitely structural. And so that has been a huge boon to demand for rentership, particularly for single-family detached. There is an element of social distancing, which I think remains to be seen how long that is part of the consumer psyche. But the work-from-home dynamic in some shape or form, from our perspective, is going to be a part of life for quite a while, and that evolves where people feel like they want or need to live. Additionally, working from home on an increased basis, people do value the yard, the extra bedroom, which could be used as the home office, things of that nature. And so that has been a huge boon for demand, and we've seen, as Beth will elaborate on, really strong rent performance from our existing customers as well as an increase in demand from other investors for access to credit as more capital goes into the space. The other piece related to the urban/suburban dynamic is, you've seen an interesting uptick in housing turnover, if you will. We haven't necessarily seen a huge increase in supply, but the move from urban to suburban settings does naturally create net demand. From -- on a -- just a market growth perspective, it's potentially a big opportunity as well. So we do see a lot of tailwinds on a broad basis, but also sort of locally within certain specific pockets of housing, which I think have a direct nexus to our businesses. I would say the metrics are out there. Beth -- I'll let Beth elaborate on our bridge business, which allows us some good real-time data into actual outcomes for our borrowers, deposition, speeds, et cetera.

Thanks, Dash. I think it's best to identify why I'm thinking about housing, and why I'm also quite bullish on housing right now from 3 kind of anecdotes in the portfolio. And I think it really drives at home for people when you can see it real-time in the assets that you're actually managing and producing and dealing with on a daily basis. First, I want to take a step back, and tell you guys that I was so wrong in April. I think a lot of us were. I took a step back and thought, wow, this is going to be a negative -- this could be negative to valuations, right? We were going in with this incredibly strong pipeline. I was concerned, our valuations might be off. When you're extending credit, you really -- only as good as your valuations and some of your other underwriting metrics. But what was really going on, I think, is a data dearth, right? None of us knew how this crisis was going to play out, and what impact it would have on housing, what impact it would have on almost anything. And the -- as everybody knows, the prognostications were really dire. What was going to happen to rent collections, what was going to happen to values, all of these different moratorium. And we really took a step back because I was concerned. I was flashing all our valuations, 5% off the top. And -- but when we actually got to the data and we were able to collect what was happening, and we could dig into the rent rolls, and we could see what was happening at the client level, it was nothing like all of the dire -- look, there were things happening. There was definitely some delinquency, but you'll see on some of the other things that we're going to be talking about today, there's really -- there was a net positive coming out of the actual data around what was happening at the asset level. And I think that's the important thing. We are incredibly data driven as an organization and have a bunch of technology built around that data in order to help us drive the conclusion. And it was -- first, cleared me that there was going to be some trouble, and then very cleared to me once we got the real data. And we started seeing rentals, and we started seeing what was happening at the various companies that we're financing that it was actually positive news net-net. And one of the things that you can actually see very clearly that Dash alluded to, is in our short-term lending book, which is our bridge book. We have seen, in the past several months, an unbelievable increase in velocity and payoffs, which is really positive. I mean that's why you're in the short-term lending book is that you are actually looking for payoffs eventually. And we are seeing that velocity at a velocity that we have not seen in the past, and we do believe that that's being driven almost completely by sales velocity, and this should be a leading indicator. I think a lot of people came into the crisis thinking, wow, anyone holding a bridge book is really going to get stuck. Any other crisis we've managed through tends to hit the short duration mortgages a little bit harder, but this one has not. And the reason it has not is because we're seeing the sales velocity in the single-family homes. The other trend that we were seeing going into the crisis that has only been accelerated by it, is the build-to-rent area. We have always been, since 2014 when I started this company, focused on build-to-rent clients. It's always been a thesis of ours as part of the evolving single-family rental business, and you can really see it on steroids now. And it is the majority of our short-term book, and it does perm out into a lot of the loans that wind up in our securitizations. And for all of the positive reasons that Dash was highlighting, about working from home, about being in a single-family home like this, the build-to-rent is really being turbocharged by those trends. Again, already in the market, already pre-COVID, but very much accelerated by some of the trends that you see post-COVID in the market. And so -- and now that we're several months in, you can see that the data coming off of all of the clients is supporting, like I said, positive rentals and other really positive trends in both parts of the business purpose lending space, the short-term and the longer-term space.

Thank you, Beth. If it makes you feel any better, I was massively wrong on single-family rentals as well in April and still take a lot of pain from investors on that. So you're not alone. I want to dig into lending. But before I do that, Dash, maybe I can come back to you or Chris, depending upon who wants to take the question. But what it strikes me is, you've spent a lot of time thinking about single-family ownership apartments and single-family rentals. We think about housing holistically at Morgan Stanley. And so I'm curious, are you intentionally viewing the asset class holistically? Do you think it makes sense to view each of the assets separately? And then maybe going hand-in-hand with that, if you are thinking about it holistically, and I'm not trying to leave the witness here, but if you are, how do you think about the capital allocation decision across the various different subsectors right now?

Sure. This is Dash. I can take that question. So you're right. We certainly think about the book and the dynamics holistically, it's important. It's important for us to do that so we can understand as dynamics move, all parts of our book ultimately interact with each other or complement each other, like I said. So we certainly look at housing holistically. There are certain dynamics that impact one area more than another, but we obviously need to take a much more macro approach versus looking at anything necessarily individually, and those do inform our capital allocation decisions. I would say, as we look at the market today and we look at the enterprise value of the operating platforms that we've been describing, job one is really to continue to support what we view as really unique and valuable operations that we have built and acquired and continue to build. We feel, from our perspective -- from a housing credit demand perspective, there's been a supply/demand challenge in the fixed income markets for years now. There is way more cash trying to access housing credit than there is -- high-quality housing credit to purchase or access. And the pandemic has made that issue along with other issues like we've talked about, even more acute. The loans that we purchase through our jumbo business or produce through Beth's business are very well-structured and very much in demand by the capital markets in some form or another. And so when we think about continuing to build enterprise value, really, job one is continue to support those businesses with working capital, human capital. Chris talked on -- talked about the technology, and I'll let Beth expand upon some the technology piece of the CoreVest business as well because I think that's all very, very important. We just think we're in a very unique spot in the value chain and housing credit right now, and that's something we're meant to continue to really drive and invest in. What's unique about how those businesses function, I think, versus others is, we do have the flexibility to keep and sell as much or any type of the risk that we want. As Chris alluded to, we have securitization platforms in both businesses, where we can sell parts of the capital structure that are better owned by others and keep the parts we want. We can sell whole loans. We can do joint ventures where we partner with pockets of capital in creative ways. And so we have great flexibility to do that. At the moment, the Business Purpose Lending business does create sort of a larger amount of assets for us simply because of where Jumbo credit is priced and where we can distribute it, but that won't necessarily always be the case. And we have the flexibility to move in and out of those distribution strategies because of how we built the business and the flexibility that we've got. It's -- housing credit in terms of performance, we're always going to focus the most on ensuring that the loans that we make or buy are going to perform. That's obviously a requisite. But even within good performance, there is obviously relative value. And like I said at the moment, BPL has been an increasing amount of our capital base over the past year, particularly culminating with the acquisition of CoreVest in October. We would expect it to continue in that direction, but it could also evolve, depending upon how -- where we see relative value broadly across housing. But Beth, I may turn it over to you for just a minute because I think the investment in the technology piece is particularly important. It's something that your business is focused on a lot from the beginning, and it's something we'll be doing a lot more of.

Yes. We've really kind of built out the technology from the beginning, as Dash mentioned, with 2 goals in mind: one, we have a proprietary end-to-end loan origination system that literally starts with the Google search. We know every time we securitize something, what words they searched when they were looking for that loan in the first place. Like that's how integrated and bespoke our actual loan origination system is. But it's really built off of this idea that we're data-driven in everything we do. And that could be external data, it could be internal data. And we're using and combining the data sources into something that has real-time feedback, that feeds our systems in a way that I do think is unique. It allows us to move from kind of most people in the mortgage industry. You can be reactive to things coming in. You can be a little proactive. If you buy some like scrape data from someone. We've actually, by combining the 2 data sources, believe that we're predictive, not just reactive or proactive. And so what does it mean to be predictive is really understanding where are the investors, who are the investors, what are the characteristics. We do it by MSA. We do it by department. And because we have now financed and managed more of this than anyone else, we also have the real-time data. I mean, your own data is your best data, right? And so if you can actually combine the external and internal sources and have the technology built around that, that's when you kind of move into the predictive range, which is where I think you're impacting your performance, you're impacting your bond performance, you're impacting your loan performance and you are sourcing deeper and better than other people in the market because you know what you're sourcing. And you're trying to source a very targeted item. You're not just throwing stuff out there on the Internet, and hoping you're getting someone who doesn't want a home equity line, right? It's really that data that drives it.

Yes. Beth, I want to stick with you for a second because one of the things that I think a lot of people are curious about is how lending has evolved during COVID. And maybe how it will be permanently changed, and how it might not be permanently changed. And we're starting to get a lot of questions on the webcast. And so as you think about that, I'd love to hear your thoughts about foreclosures post-forbearance. And if you think there is going to be any more forbearance and how that's going to play out in the business purpose market. So I'll leave it up to you how you want to respond to that, but I do think that there seems to be a focus coming in from investors that we've also discussed about as what do you think about forbearance trends. And what will that mean for foreclosures and the impact on loans going forward?

Yes. So if we back up to April again for a second, we got a lot of phone calls. Not a huge number of phone calls, but certainly, it was in the news. And I think you were kind of crazy not to make a phone call to the servicer and say, "Hey, is there something special for me out there on this new menu of things that the government is talking about?" As it worked out, it doesn't really -- most of the government-mandated programs don't really apply to Business Purpose Loans. It's not a consumer product, and there is a bunch of different reasons for it. But there are some of them that do. I mean there is some rent moratoriums and things like that, that would apply to someone's asset who might be in a Business Purpose loan. But those phone calls really didn't materialize into actual forbearance requests because once people realized they had to actually fill something out, showing that there was actual hardship in the portfolio, and they weren't able to bear that out because we can go into what's actually been some pretty positive trends in the portfolios, the forbearance requests evaporated. And so we've actually had a very, very small percentage number and not one has actually come to fruition yet in any of our BPL securitizations. So we don't actually have any on the books, and there is only a handful where you'd actually, probably, see some merit, but it still affected our lending practices. And we're very comfortable with our underwriting guidelines in general, but we did take a step back and say, where in the underwriting guidelines should we be even more -- where should we increase the focus, where should the heightened focus be because of COVID. And I think all of us could agree, you want to look at liquidity a little bit deeper for the sponsor, right? Because what is the real risk here is that we don't have enough rental payments at some point, or is that what's trying to cover the loans, it just isn't available to us, right? Or there is a foreclosure moratorium, and so we can't get the guy out who's really not paying. So we're hyper focused on liquidity, which have always been covenants and always been part of our underwrite, but it's definitely taking more scrutiny. And all of our post-COVID collateral right now, like the GSEs in the commercial space, we do have rent reserves. 3 to 6 months, different amounts, different structures depending on size of the loan, who the sponsor is, things like that, very well received by the market, obviously. We have not had anyone have to tap into the rental reserves, and we're actually seeing significant positive rental increases and speed to leasing. So just like I'm seeing in the bridge book, speed velocity in sales, all of our rental clients are seeing an increase in velocity in speed to leasing, which is also helping them on kind of a coverage perspective. So the market is -- likes the fact that we do have some structural enhancements. We are definitely -- we're also focused and we've always looked at rent rolls. It's part of our underwriting process, but we now look at this month's rent rolls, not just 3 months trailing or whatever was sufficient for underwriting in a normal market. And this is where we are literally granular to the month that we're closing the loan in to see that they really do have the occupancy that we're requiring for the loan to close and for the coverage to be there.

Got it. So I want to come back to this in the Q&A, but I want to turn it over to Jim to ask one final question before we do move to Q&A, on future growth opportunities for Redwood. So Jim, I'm going to turn it over to you.

And I think the question here is, as you think about the future, do you anticipate Redwood will grow by capturing more market share? Or is it simply growing the markets where you already participate?

Jim, it's Chris. I'll take that. The answer is, definitely both. We know who we are. We know exactly where we fit into housing finance. We -- by way of partnering with CoreVest, we basically cover the entire, what I call, non-Agency sector. So we are covering consumers and renters. It's a very exciting time. We had a very challenging March and April, but what that effectively did is it allowed us to reposition our balance sheet to take advantage of an opportunity that, frankly, we didn't see in the cards. We lived through the last financial crisis, and if you look back the firms that were established and prepared to take advantage of those post-crisis opportunities in 2009, 2010, 2012, they really prospered. And there is a slew of them that are now very large as a result. We are fully prepared. The businesses are established, and we've been able to take advantage of significant growth in our pipelines. So it's a very exciting time. It's an opportunity that, frankly, was not in the cards 6 or 9 months ago. So while the period of this past winter has been painful, and we're still, as a country, coming out of it, I think the opportunities for us are pretty significant. In the Jumbo space, we've been -- we had patiently been waiting for capacity to open up with originators. We buy loans. We don't originate loans on the residential side. And obviously, by way of the Fed buying Agency mortgages, that's been a very lucrative opportunity for all originators on the consumer side. But we knew that over time, the jumbo opportunity would open up and follow suits, and we wanted to be prepared for it, and we're seeing that now. So it's pretty exciting. And on the Business Purpose side, there is a lot of evangelizing going on. When you think about single-family detached homes that are rented, the majority are still essentially owned with cash, whether you inherited a home or you're renting an investment property. People actually aren't completely knowledgeable that there is great financing opportunities out there to grow and maybe buy more homes or certainly, if you're a large investor, which we serve, the growth opportunities are pretty significant. So I think, overall, we know who we are, we know what our markets are and what they're not. We expect to gain share, but both the non-Agency jumbo space as well as the Business Purpose space have great trajectories ahead of them.

Thanks, Chris. I want to start off with Q&A with maybe a bigger question on the housing market. But the question specifically is, can you comment on supply constraints for new home sales, given low inventory as well as for existing home sales? So ultimately, the question is, the supply versus demand technicals in the housing market. Do you think that's short term or long term? I know you'd briefly addressed it, but I'd love to hear a little bit maybe more focused answer on that supply versus demand right now.

Yes. It's a great question. I do think it probably depends on what -- on geography, frankly, and what type of housing stock we're talking about, but we don't think it's necessarily short term. We think the demand, particularly for single-family attached, is going to continue to grow for the reasons that we talked about. I would say from one -- to Beth's comment, we are seeing the homebuilders react to some of this. The build to rent part of our bridge lending business is really growing for those reasons. There is a real significant demand for rentership in those sorts of communities. And you've seen more and more sponsors allocate their own capital to those sorts of strategies and -- which has obviously led to more and more lending opportunities there. So I think we're getting there. Interestingly, just looking at some data this morning, we did see a slight decrease in the sale price of new homes and a relative -- a small increase in the amount of homes that -- of new homes that's sold for less than $0.5 million. That's not a function of home price decline, that's a function of more supply coming on the market that's responsive to first-time homebuyer price points or investor price points where you can make an attractive return renting out the home. And so I think we're starting to see some trends there, and Beth, you could weigh in here as well, you're so close to these borrowers. You're starting to see the capital markets respond to this demand in a lot of ways, but I still think demand is going to outstrip supply for the foreseeable future.

Yes, I would agree. We are very supply constrained, which is one of the reasons we're so bullish on the build-to-rent space, but also the renovate-to-rent space. We do provide capital in the short-term book for those that are aggregating pools of really obsolete housing and refurbishing it so that people can live in it. And that tends to be in the 150 to 250 cohort, not -- nowhere near where the homebuilders are actually producing homes. And that is, in my mind, where the biggest shortage is, is in the affordable housing segment and nice affordable housing. So the renovate-to-rent segment really is taking some of the obsolete housing stock and putting it back into housing, albeit in the rent space, although so some people are flipping it. That tends to be more of an aggregation play at that price point.

Got it. Beth, I'm going to stick with you. Always interested in questions like this, but a question is coming in about the integration of your business into the Redwood platform and the synergies that have been achieved over the past year or so. So I'd love to hear from your perspective, no pressure at all, by the way, on the integration process.