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

Hi, everyone, thank you for joining us for this webcast on non-agency market trends. I'm Lisa Hartman, Head of Investor Relations with Redwood Trust. With me today is Chris Abate, Redwood's Chief Executive Officer; Dash Robinson, Redwood's President; and Brooke Carillo, Redwood's Chief Financial Officer. Moderating today's discussion is Stephen Laws, Director of Equity Research at Raymond James. Before we begin, I want to remind you that certain statements made during this webcast 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. During this webcast, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is provided in our first quarter Redwood Review available on our website at redwoodtrust.com. Also note, the content of this webcast contains time-sensitive information that is accurate only as of today. The company does not intend and undertakes no obligation to update this information to reflect subsequent events or circumstances. Finally, this webcast is being recorded and will be available on the company's website. I'll now turn it over to Stephen Laws.

Thanks, Lisa. Good morning. Happy to be here today to host the chat this morning with the Redwood Trust Management Group. We currently have a strong [indiscernible] rating on the stock, Redwood's been our top pick since August of last year. We continue to believe the macro backdrop's attractive given demand for single-family housing. We like the company's management team, the depth of that team, internal management structure, which we think is shareholder friendly in a space where most peers are externally managed. Additionally, we think the business model is unique as the company has both an on-balance investment portfolio and an operating business that allows them to self-fund some of their growth in the investments that they self-create. So I touched on a lot there, Chris. I've covered the company now for over 15 years. I know you've been with Redwood over 15 years. A lot has happened over that time. But I'd love to start with the general update on Redwood, how you have the company positioned here for the opportunities you see ahead?

Sure. Well, thanks, Stephen, and good morning, everyone. Stephen mentioned, my name is Chris Abate, I'm Redwood's CEO. Dash and Brooke are also joining today. And it's exciting to be telling the story to some familiar faces, but also a lot of new faces, new potential investors. Just as the company starts to crack the mainstream a bit, the story in nonagency is pretty interesting. I think it's easily the biggest growth segment of the mortgage sector. Obviously, the commercial market's been heavily disrupted and the agency market is starting to deal with tapering and other changes. Our sector's quite unique. And Redwood really is at the center of that space. So it's a great opportunity for us to share our vision. And the company is doing a lot of new and exciting things, but we're not a new firm. We're 27 years old, publicly traded in the New York Stock Exchange. We've got a great balance of very experienced risk managers that have seen many cycles, as Stephen knows. But we've also got a lot of new talent, a lot of energy and a very purpose-driven workforce. The mission of the company is to make quality housing accessible to all American households, whether rented or owned. And just to unpack that for a second, that really speaks to our desire to really serve the non-agency space. So you have an agency mortgage market, which is the likes of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and they serve most borrowers, but there is a $3 trillion-plus market of borrowers that aren't well served by government-sponsored programs or just unserved. And that's really where Redwood comes in. We're working very hard to institutionalize that space. And I think with some of the regulatory changes in play as well as what we've built over the course of many years, it's just a very exciting time for us, and we're looking forward to kind of taking advantage of the platform that we've built and really taking the firm to a new level. We have 2 primary platforms that we operate out of. We have a residential platform that's based in Denver, and a Business Purpose platform that's based in Irvine. We also have a New York office, but we're primarily in Colorado and California. We have 2 flags that we operate under, which is Redwood and CoreVest, but it's really one unified strategy. It's all non-agency. We're very focused and know exactly where we want to be and what segment of the markets we want to attack. We serve consumers through our residential business. There we buy loans from originators, we're not a direct originator. And on the Business Purpose side, we do originate and serve clients. Those products are tailored to housing investors, folks who want to own and rehabilitate properties or rent them. So the business has expanded quite a bit over the past few years. We're executing on a strategy that we initiated maybe 3 years ago now. And as a result, post-COVID, we've been able to hit the ground running. I think we did the first PLS deal securitization with sort of on-the-run fresh loans since the COVID crisis last year. And most people in the industry are very aware of our brand, our leadership position in securitization, where we continue to be very active and try to serve the role of a Freddie or Fannie in our space. So Stephen, that's a very high level overview of the company and where we're focused. I presume at this point, we might dive into some of the details.

Yes. That's fantastic. I'd love to -- maybe we'll start from the macro now. You mentioned a couple of these things. But -- can you talk about -- there's a recent presentation you put out for an industry event a couple of weeks ago. Can you talk about the macro tailwinds you're seeing? How this is driving the business opportunity in volumes today? And then kind of to stay at that level, maybe let's touch on the GSE reform and opportunities on the non-QM, given events coming out of Washington?

Sure. Well I'll kick this off, and we can get Dash and Brooke involved as well. But as many on the call know, the non-agency space is growing immensely. And there's some very logical reasons for that. Number one, home price appreciation has simply put a number of borrowers outside of the performing limits from the agencies. So as you see home prices accelerate, that basically is a total correlation to growth in the non-agency sector. That acceleration is outpacing conforming loan limit increases, which are typically done annually. And Redwood, again, is at the center of that universe. In addition, housing investors continue to take share. Everyone knows that the housing stock in this country is woefully inadequate to meet demand. So you've got increased competition from investors who are rehabilitating and renting homes. So there, again, that's a $90 billion addressable market. The jumbo market, we think, is around $450 billion. And in aggregate, you're talking about trillions of dollars of financed non-agency collateral. So the tailwinds are definitely there. The other piece of our business that I didn't touch on is our investment portfolio. We love to create investments through the loans that we create or acquire. We'll package those and securitize those. Those investments are typically deep discount, credit-sensitive investments where we sort of backstop the securities that we sponsor through ownership of those bonds. And those bonds continue to perform extremely well. What started as a recovery story post COVID continues to build momentum. And from an outright performance standpoint, the book has been very well positioned. So we've enjoyed significant appreciation there. And fortunately, we believe there's a lot of runway for those [indiscernible] So a lot of tailwinds. At this point, I might turn it over to Dash to dive into some of the aspects of perhaps non-QM or particulars of the platforms.

Sure. Thank you, Chris. Just to piggyback some of Chris' remarks on the tailwinds for our space, a big evolution, which we are in the midst of readying for and have been for some time is the evolution of the qualified mortgage rule that's been in place for almost 8 years at this point. And that was sort of a centerpiece of some of the legislation that came out of the great financial crisis and really had to do with ensuring that lenders were focused on, as they should be, a borrower's ability to repay a mortgage and the suitability of the various products for borrowers. And for the last several years, while that's the right impulse, the actual text of the rule has created some real frictional cost in terms of creating certain types of mortgage loans. And frankly, a lot of rules, many of which are footfall-type rules that flip certain types of loans into and out of different types of statuses, which have important implications not only for how those loans are created and originated and the cost that it takes to do so for our partners, but also, frankly, how they can be financed in the securitization market because there's a linkage between certain obligations for securitization sponsors like ourselves and how some of those loans are bucketed. So a few quarters ago, and this is really in process now, there were some important streamlining, frankly, for some of the rules, which we expect through time and really starting now to have a meaningful impact and a meaningful growth on the so-called cohort of qualified mortgages. And that's important because what that means for us and for our seller base, we're purchasing loans every day from north of 100 different sellers across the country. So this is an industry-wide issue and impacts all types of originators, large and small, bank and nonbank, all of whom we interact with. The fact that there is now more of an interest rate or borrower rate-based rule for what determines qualified mortgage status is really different from where we were before. Previously, there were a few other metrics which were included, including debt ratios or debt to income above a certain bright line. Those mortgages were considered nonqualified except for GSEs. So there was an unlevel playing field between the private markets and the GSEs. And that playing field has been meaningfully level in a way that we expect will reduce cost to produce for these types of loans and open up really an important new sleeve of credit availability for certain parts of the market. If you look at over the past year or so, our volumes or our metrics, it's probably close to unprecedented, just the quantum and quality of mortgages in the jumbo space that we're purchasing and that are being produced in general. A typical sort of average portfolio for us has a FICO in the high 700s, debt-to-income ratio of probably 30% or lower, 70% or lower LTV. Just fantastic loans to really, really high quality borrowers. And a lot of that is intuitive. Coming out of COVID, obviously, lending standards are beginning to evolve back to where they were pre-COVID. Certainly, household balance sheets notwithstanding some of the COVID disruptions are in a good spot, just from an overall leverage perspective. Obviously, that's been helped along certainly by where housing has gone. People just have a lot more equity in their homes. Home equity overall in this country is over $20 trillion at this point. So all that's intuitive, but what it also tells you is that there's a really high quality sleeve of borrowers behind this cohort that either isn't being served or is being served at rates that are frankly not attractive and not necessarily conducive frankly, to competing to buying homes in markets that as Chris said are increasingly competitive with some of the consumer behavior with COVID or just in general where housing turnover has been over the past year or 2. And that's particularly exciting for us. And we have an expanded prime program that we've had for almost 6 years now. It's called Redwood Choice. Pre-COVID, that channel was close to 40% of our overall volume. So a really, really meaningful portion of our volume and earnings in the residential mortgage business. And that tailed off as we expected. In Q1 Choice was about 5% of our total locks, but we're starting to see that trend upward. We expect Choice to be over 10% of our lock volume in the second quarter, which is great progress. And it also reflects, importantly, like Chris said, some of the differences between our market and the agency markets. Obviously, a lot of our sellers focus on producing conforming loans that get sold to the GSEs. That's obviously an important business for them. But as the GSE refi opportunity is largely abated at this point. And as Chris said, just some of the other foundational issues there that the conforming markets are dealing with. You're seeing finally loosening up and an increase in capacity in the market, which is important. And that allows loan officers that we face to focus more on our products. And they have it and you're starting to see expanded prime as well become a larger part of things here, which is a huge tailwind to volume and earnings potential for us.

Thanks, Dash. A follow-up there and then sort of an add-on, but you mentioned the record volumes. I think it's been record volumes and locked pipeline a couple of quarters in a row now. You mentioned the acceleration you're seeing in Choice. Can you maybe talk, and I know we're at the end of the quarter, but can you maybe talk a little about generally the strength you're seeing in the pipeline, your outlook on the volumes ahead? And then as an add-on, Brook, there's been a lot of discussion about margin compression in mortgage originations. But your products are pretty unique. This is not a conforming refi-type application or loan where you're seeing the most margin compression. So maybe to piggyback on Dash's comments, strong volumes, can you touch on margins today and the jumbo and BPL that you're seeing versus 6 or 12 months ago or past points in your career.

Sure. Thanks, Stephen. I'll start with margins. And we have continued to see really, really strong trends in volumes across our businesses. With BPL, we had a strong first quarter. We expect volumes to exceed Q1 by a pretty healthy margin. We're obviously just at the end of the quarter, so we can't get into too many specifics. But the momentum across BPL, across our products there, has been particularly strong. I think a couple of things I would say there. So we sort of editorialize a bit on the why behind that. CoreVest is a very, very unique entity in the suite of products that we have for our borrowers. We really are a life cycle lender. Our core product is the single-family rental product, the 5- to 10-year maturity, fixed rate that we securitize. And that continues to be a very deep market as more and more capital flows in, our borrowers are growing their business plans, et cetera. But when you think about the overall activity with housing investors, the fact that they are an increasing part of the market and a lot of MSAs across the country. And you marry that with some of the supply-demand dynamics that are out there as well, that's where a life cycle lender like CoreVest is a particularly important market presence because we can provide liquidity all the way at the front end to people that are just starting to build for rent projects, who are creating high quality and affordable rental housing stock, single-family detached, very responsive to what consumers are looking for. We can finance that all the way through to when those are stabilized and the borrower's looking for a long-term fixed rate loan. And that stickiness and that continuity of lending and approach has always been really important. It's always been a foundation of the business, what's made it so attractive to us when we purchased the platform a couple of years ago. But if you look at the dynamics, supply/demand, where capital is flowing in the space, that's becoming even more strong, frankly, competitive advantage for CoreVest and has really been a driver of volumes here this year. Pivoting quickly to jumbo, and then I'll turn it over to Brook. We had a record quarter in Q1. We had over $4.5 billion of locks in our jumbo business in the first quarter. In Q2, we expect locks to approach $4 billion as well. Obviously, we have a couple of days left in the quarter, but we're continuing at a run rate, which we feel is particularly strong. If you annualize we expect our Q2 numbers to be -- will be well in excess, probably over 25% higher of our trailing 12-month total. So really, since the market refound its footing in the middle of last year, we're still really trending in the right direction here. And we feel good about that. And like I said, and like Chris said, there's a lot more room to the ceiling for volumes here if you think about how the non-agency market is likely to evolve from an opportunity set perspective.

I'll just add on to what Dash said. I think the securitization execution and the strength of full loan distribution remains a great tailwind for both margins and frankly, our ability to continue deploying capital. It's roughly continued to be a 50-50 split. So really strong demand from both parts of that market. And just one thing on the volume on the CoreVest front, I think Dash did mention capital flowing into the space. We've seen an enormous amount of institutional money and deals announced this year alone and the fact that we have 50% of our SFR business coming from repeat borrowers, that's just -- it's a relationship-driven business. And so that is one thing that helps both consistency of volume and margins as the space becomes more competitive. And then lastly, we did announce a strategic investment in Churchill Finance back in April. And this is just another diverse sourcing channel for Redwood, particularly because it's a different emphasis than what the CoreVest team does, with a focus on slightly smaller balance single-family rental and bridge loans. So as the bridge becomes an increasing part of our business, I think this will be a great partnership to deepen our market penetration on products that are in really high demand from end borrowers, so a great distribution opportunity for us. And I think there is a capital markets strategic mode around both of the businesses. We've been -- we've done 16 securitizations on the CoreVest front and obviously have had a brand for many, many years on the residential side, which is really the core of our strategy. And so that, combined with just some relationships, those are helping our volumes. But in addition to the volumes and distribution channels remaining robust, we've -- been really starting to see our operating efficiency metrics and the benefits of scale as we've exceeded some of our volume targets. We've seen a steady improvement over time in our operating cost for the operating businesses, especially as a percentage of volume and also in terms of capital efficiency and the term times that we're seeing on our capital as we get them off balance sheet. I'll drop one step for you. And just in terms of resi, since we relaunched the business post COVID, we've seen about 1.5 months improvement in terms of our turn time for our capital and our operating cost per loan continued to decline. So we've been really public about our desire to grow market share and put out targets. And so as we increase share and our penetration with our seller and borrower base, we'll be using capital markets execution in addition to technology that we can touch on later and other process improvements to drive speed to market and efficiency. And so we're just really highly focused on continuing to advance our capital initiatives within our operating businesses.

Thanks, Brooke. I'm glad you brought up scale. That's certainly something I think about a lot, given your internal management structure and the fixed cost of the operating business, your ability to increase volumes there at incrementally higher margins. And maybe that's a good segue to the business model, Chris. Can you -- I think one of the most unique aspects about Redwood in my coverage universe is the ability to grow book value as opposed to really having to distribute all of your earnings through dividends. But can you talk about your unique ability because of the operating business and the taxable REIT subsidiary to both provide investors with an attractive yield, but also retain some capital to fund the organically created investments that Dash and Brooke both mentioned? Again, I think it's one of the most unique aspects of the company. So I'd love to have you touch on that for a little bit.

Sure. And to pay credit to you, Stephen, I think that's probably the biggest missed aspect of the story and something that you've been way out and front on, I think, to the benefit of the folks who subscribe to your research and focus there. In our business, I think we get slotted in with other mortgage REITs in the sense that they're running passive investment portfolios that are very dividend-focused, where substantially all of the income is distributed. The REIT [ election ] for us is just a tax selection. It doesn't define the business. This is a living, breathing operating platform where we generate repeatable sources of earnings through our mortgage banking businesses. Those earnings are held at taxable subsidiaries. So we pay taxes, we pay corporate taxes on those earnings. But in exchange for that, we can retain the income. And that's been a huge facet of our book value growth story and something I think many in the industry have missed. And as book has risen significantly over the past 3 or 4 quarters, the operating income that we generate from these platforms can continue to be plowed back in to reinvest in the platforms. And that's really where the repeatable earnings come into play, especially at a time where it's very difficult to put money to work in third-party assets. Yields are very, very low, as everyone knows. We have the ability not only to generate very, very strong ROEs in these platforms, I think we've said north of 20% for a while. We're also able to create investments to create really attractive, high yielding credit investments that we can use to grow our investment portfolio, where we do generate retaxable income and pay dividends on that end. It's definitely a 2-pronged earnings story. And as we continue to grow these mortgage banking platforms and they become a greater source of revenue, I think this piece of the story is going to become progressively more important. So it's a really good question and something that we're trying to educate the investor base on.

Brooke, as a follow-up, I'd love to touch on the potential around call gains. That's kind of a third cylinder that could potentially drive book value growth outside of the retained earnings and mark-to-market on some securities. I thought the recent presentation that I referenced earlier had a very compelling book value build chart or potential opportunity chart. Could you maybe touch on the potential from upside to book from gains on calling some older securitizations?

Yes. As we mentioned, it's only one of the legs of the stool. We've put out more detail in our public disclosures around this on our last earnings call and then subsequently in some follow-up investor presentations, just to continue to provide the market since this is something a lot of our equity investors are probably less familiar with, more insight around the magnitude and even the expected timing around these potential gains. So what the call rates are they just relate to the securities that we own in our investment portfolio across really a few different channels, both our Sequoia, our residential -- our capital in the CoreVest front and then our SLST deals. So these become exercisable at borrower's underlying portfolios generally pay down to some predetermined thresholds. And so then when that happens, we can generally either sell or resecuritize those loans. And just given where the market is today above their par value, which creates even further upside to earnings and book value. So we did put some numbers around this, which we've continued to sharpen our pencil around as the market falls. We've been fortunate to have a really constructive operating backdrop too between healthy prepay environment and really constructive credit delinquency and [indiscernible] trend. So we estimate about there's over $2.3 billion-ish of loans really across both of our businesses that could become callable by the end of 2024. And I know that's a long time horizon. So we predicted that about $2 billion of that, so over 80%, most of that is actually callable by the end of 2022, and that's obviously predicated on a lot of things in the broader environment, but we did bridge what those could mean in terms of book value upside. That's about, I think, $0.71 a share of potential premium on the callable loans that we added to book value. So that's one of the legs of the stool. In addition to upside from the call, we also mentioned that, and this is something Chris touched on earlier with just the strength of our credit in terms of our securities in the investment portfolio. We have about $300 million net discount to par value, that was statistic still from last quarter, so that you can expect that to be updated at 6/30, but we have the potential to realize that over time as well. And we did put out in our last release that we had -- our investment portfolio was up 5% in the second quarter to date. So part of that has -- we've seen in terms of that being realized. And so between that and the retained earnings piece, which, as Chris mentioned, the revenue mix is just continuing to shift more and more towards the banking side of the business. It was over 70% in the first quarter, and we expect to be around those same levels for the second quarter. And so this is really a considerable evolution since even 2018 and 2019 when we saw really healthy volumes in our operating businesses, but they were more in the context of 30% to 40% of our adjusted revenue. So if we think about -- but Dash mentioned, just in terms of the growing volumes and our durable margins, this does increasingly shift more of our earnings down towards the taxable subsidiaries, which would support additional retained earnings and book value over time. So those are some of the components that we see to the upside and book value that we put out in our last June 15 presentation.

Great. Thanks for reviewing that. I think that is certainly a very compelling piece to the story that's unique among your peers. I think that most investors that are familiar with Redwood are certainly familiar with the jumbo focus. Dash, I want to circle back and really talk about the dynamics of growth in business purpose lending. It's something that's, what, fourth quarter of '19, I guess, 18 months ago, you guys acquired this business, you're a market leader. It's putting record volumes. Can you maybe expand on your comments from earlier and really talk about what's driving the growth in that business?

Sure, happy to, Stephen. Maybe I'll spend a second just to level set for the audience, the investor universe that we really serve there to sort of contextualize the breadth and depth of what we mean when we say housing investors. Being an investor in housing is obviously not a new thing. Folks have owned and rented out the house next door forever. But what we've seen in the past really a decade or so, somewhat coming out of the crisis is a real institutionalization of how housing investors approach the market, deploy capital and run their businesses. I think there was a short period of time, probably in the 2011, 2012 time frame where there was potentially a little bit of debate about whether these were actual real business models or whether these are opportunistic investors coming in because housing felt cheap. I think that debate has long been put to rest. These are long-term durable businesses. Many of our clients are truly institutional. They own tens of thousands of homes across the country. And these are long-term capital source businesses as well. These aren't folks that have to return money in the next 6 to 12 months. And in addition to that, there's been an increasing diversity of where these folks are deploying capital. Obviously, the longer-term stabilized portfolios for single-family rental has been a real emerging opportunity. The single-family detached for rent markets over $3 trillion at this point and growing. So it's a massive, massive overall market. And the $90 billion that Chris referenced is what we view as really a potential annual opportunity for originations. And what that tells you is that there's a significant market that hasn't even been penetrated yet in terms of just investor borrower knowledge of some of the products that are out there. And so with single-family rental, it's a very mature product for us, but it's one that we feel could continue to grow. And what's evolved a lot over the past few years is really the short term with the bridge part of our business. A lot of our competitors focus on the traditional sort of single house fix and flip or sort of single asset-type product. And we do some of that. We expect to focus more on that through the Churchill partnership that Brooke referenced. But the shorter-term bridge products that we do in CoreVest really are unique. They focus on the first part of an end-to-end strategy. So we do a lot of build-for-rent financing. We do some largely smaller balance multifamily, all of which we expect to evolve into an opportunity for a term takeout. We have structured lines of credit for more sophisticated investors that put pools of homes online, stabilize them and either rent them or sell them. Those structures are helpful for them, but also very credit positive for us because we get the [indiscernible] benefit that we have elsewhere in our book as well. And so it's really a wide array of investors that we serve. It's small investors all the way to the institutions. And we compete on every loan we do, but there's really not anyone out there on our estimation that is focused as end-to-end as we are, not only in terms of borrower size, but also the types of products that can serve these borrowers across their life cycle. And I sort of preface that because when you look at the capital that's flowing into the space, it really is remarkable how much is not only coming at the top end of the market that Brooke referenced in terms of -- the larger folks are raising more capital. Blackstone obviously exited Invitation Homes, they're back in a couple of other vehicles. So you're seeing it in all price points or all sizes of the market, so to speak. And it's largely because it's been a good investment. Obviously, HPA has gone up. But rents, particularly single-family rents have been incredibly durable here. The way they've performed through COVID, frankly, has been remarkable, and they've had positive gains as far back as, frankly, the data indicates in terms of where single-family rents have gone. And so it's been a strong investment. And as our borrowers have grown, they've gathered more capital. Brooke referenced the 50% repeat borrower rate, which we think is a healthy mix between stickiness, but also us increasing client acquisition, which is a big deal. And so all of these things are real tailwinds to the markets. And again, when you think about supply-demand, our ability to make that -- to lend that first dollar all the way to that last dollar is particularly unique, and it's been a real boom to volumes and just overall opportunity here for us.

I'd actually add to that, I think Dash summed it up extremely well. Stephen, we -- business purpose is to us sort of going where the puck is. We're in the non-agency business. And we did not want to be betting on the homeownership rate in the United States and being on one side or the other. We want to serve the entire market. And this is a huge aspect of the non-agency mortgage space. And it really is reflective of all the way through into Redwood's results. And I think last quarter, we said the resi business had a record quarter. We had great P&L from mortgage banking. In the second quarter, we expect business purpose mortgage banking to exceed residential. So the complementary aspects of these channels are phenomenal. But holistically, we're serving a single market, which is this space outside of the GSEs.

And one correction. One follow-up. I mentioned you guys acquired CoreVest in late '19, but I believe CoreVest has been in business servicing these clients -- serving these clients for 10 years, give or take. So they're certainly well-established in the marketplace. You guys have mentioned Churchill. Chris, I'd love to follow up on your technology initiative. It's long been a focus of Redwood Trust to drive efficiencies there. But can you talk about the new investments through Redwood Horizons and the opportunities and longer-term benefits you see playing out from that strategy?

Sure. And I'm sure the gang will jump in here as well. But technology at Redwood, it's only been recently that we've -- it's become more prominent. I said we're slowly cracking the mainstream here in some aspects with our story. And technology is a big factor there. If we were having client meetings, and this was a client call or we were talking with some subset of our seller base, 90% of the conversation would be around technology. There's some very exciting initiatives. They're allowing us to buy loans faster, which everyone loves. We're automating more of our workflows, really trying to institutionalize the non-agency space. And we were having so much success with some of these initiatives that we actually decided a few quarters ago to bolt on to our organic technological development, RWT Horizons, which is an investment vehicle dedicated to financing start-ups for early-stage companies that are disruptive and have a close nexus to helping us do what we do better, faster, more reliably. And so that's been very, very successful so far. We'll have more to say about that on the earnings call. But I think the -- overall, it's going to be through technology that this market really matures. And we've got a long way to go when you think about the level of automation that's been facilitated by the oligopoly in the agency space, which is you essentially have Fannie and Freddie, you've got 2 buyers. The non-agency sector is a lot different. There's a number of buyers, but nobody's kind of cracked that code. And I think as we look to more of the agency market transitioning to non-agency, you mentioned the non -- QM rule. Obviously, you've got the 7% caps in place for noncore, nonowner-occupied mortgages on the agency side, which is resulting in huge growth on the non-agency side as a result of picking up that business. Those originators are used to speed and automation. And I think ultimately, who's successful in gaining that share is going to be who can replicate that experience. And so we're very focused on that technology in all aspects of the platforms, certainly both residential and BPL.

Great. Thanks for providing an overview of the Horizons initiative. Maybe in closing, Chris, could you -- what do you feel like the most important thing is to -- the investor community needs to look at? What are typically the biggest strengths maybe inside your business that you see that maybe the investment community is -- underestimates or really doesn't pay attention to? I think that would maybe be a great way to wrap up today's chat.

Sure. Well, I think the biggest thing is to really drive home that -- this business since the financial crisis, the changes that affect the business come through Washington. And you've seen a slew of regulatory shifts, which we're just starting to see the effects of. The QM rule before it was a completely unlevel playing field where the GSEs were exempt from all of the ability to pay requirements, Appendix Q. It was a completely different dynamic. And as a result of the changes to that rule, we expect to be much more competitive. You've got the investor loans moving to the non-agency sector. So I think the regulatory shifts are often a major catalyst to what happens to different parts of the industry. And in this case, these are shifts that we planned for, for a number of years. Certainly, our partnership with CoreVest was predicated on expecting these types of shifts, which we're now realizing. Obviously, the COVID-19 pandemic disrupted the timing a bit, but you're seeing them now. So that's a very important piece of our strategy that -- we were prepared for that and we were able to hit the ground running. I think that the other big piece, which people don't see, and I referenced it with technology, but it's just the relationships, the durable relationships that the company has built over the course of decades. Really are -- is something that money can't buy. Our sellers can go to us if they have a loan that needs a warm body review, a loan that doesn't fall into a grid. They know who to call. And as a result of that, our securitization platform, if it's a Redwood deal, the vast majority of AAA investors are just comfortable. And that reputation, that performance history matters. And that's something that I think you need to have as a requisite to take advantage of some of these changes we're seeing in the market. So we'll experience competitors, but we feel very, very good about our positioning. And fortunately, we've had the better part of a year here to demonstrate the potential of the platforms, which we haven't remotely realized. So it's a very unique time. It's exciting to be in the business today. And we look forward to reporting on what we think will be another strong quarter.

Fantastic. Thanks, Chris. I'd like to thank Chris, Dash, Brooke and Lisa for the opportunity to host the chat today. And Lisa, I'll turn it back over to you.

Well, thank you. And thank you, Stephen, so much for hosting us as our moderator. And thank you to the audience for joining us today, and have a great day.

Thank you.