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

Welcome, everybody. Welcome to Redwood's 2021 Investor Day. I'm Lisa Hartman. I'm the Head of Investor Relations here at Redwood, and I'm really happy to have you here. We have a full agenda this afternoon. And just quickly, I'll walk you through that. A little bit of housekeeping for those in the room, if you're looking for WiFi, there are some WiFi tent cards. The network is Redwood, and the password is Welcome with a capital W 2021. So we're going to start our day with Chris Abate, who's going to go through our strategic overview; followed by Dash Robinson, who will walk through our multiyear operating plan. And then we'll have Beth O'Brien talk about our Business Purpose Lending and give an update there, followed by a Q&A session with other leaders from the CoreVest team. And then Fred Matera will come up and give an update on Residential Lending, and we'll also have a Q&A session with other members of the residential team as well. And then we'll open it up for Q&A to the audience and then go into a short break. And the second half of the afternoon, we're going to start with a panel on the Future of Housing Finance, and that will include Chris, as well as Michael Bright, the CEO of Structured Finance Association; and Armando Falcon of Falcon Capital Advisors, who's also one of our directors on our Board; and Bernadette Kogler, who's the Cofounder and CEO of RiskSpan. And Ryan McBride will then give an overview on our RWT Horizons initiative. That's our venture arm. We're doing some really interesting things and technology investments there. Sasha Macomber and I will be giving an overview on our ESG initiatives, frameworks and programs here at Redwood. And we'll close the day with Brooke Carillo, Redwood's CFO, on our financial review and outlook. Before we begin, I would need to go through some formalities to remind everybody about forward-looking statements and want to remind you that certain statements made during management's presentation 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. 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 the appendix of management's presentations, which will be posted on our website later this evening and also in our second quarter Redwood Review, also available on our website. Also, please note that the content of today's presentations contain time-sensitive information. It 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. And with that, I will turn the event over to Chris.

Good afternoon, everybody. The worst job in this room is that countdown clock. There's just no way that's going to keep up with us, especially me, so it's just a prop. I want to welcome everybody as well to our Annual Investor Day. It's been a long time coming. We had to cancel last year, obviously, and we hope to have had all the trappings of a fully live and in-person event this year. We came close. It's a hybrid event, and most of the audience actually is virtual. Had a lot of registrations and a lot of extra interest, so it's actually worked out pretty well. But we do have quite a few people here, some of my favorite people. We have, I think, all of our equity analysts in the audience today, which I really appreciate. To reward your bravery, I think we're going to have one of the highest bar tab-to-analyst ratios in the history of corporate investor days with a fixed cost to rent out The Plaza. So it's actually so bad that if our team does a bad job, we're going to get downgraded tomorrow on just inefficiencies. So hopefully, we have some good presentations today. Before I dive in, I did want to just acknowledge our people, our presenters and our support staff. We got a lot of firepower in this room today, you guys, and it doesn't happen very often with COVID. So it's actually been great for us to get together, too. And it's very humbling to think that, now, I believe, we are running the oldest, independent mortgage REIT in existence with the Capstead sale a few months ago, and that's a little daunting. I was reading an interview from Jeff Bezos, who said something to the effect of companies aren't really built to grow old, and a lot of them just grow old. They don't grow up. So for us, making sure that we're running a contemporary approach here with -- respecting all the traditions that have made Redwood great by bringing in new energy and new people. I think the passion and the enthusiasm and the want-to from our team is the best it's ever been. So I don't think there's anybody in the audience today that would accuse us of getting old, accuse us of a lot of things, but I think the company is in a very, very good spot, and we're about to hit the accelerator pedal. What we're focused on, first and foremost, Redwood is about the people. It's about the intangibles. This slide, there's a lot of words, but it's really the headlines, reputation, human capital, platform and relationships. What makes Redwood really great is we are not just managing a book of assets. And you guys, all you're thinking about is the direction of the yield curve. That's actually probably something that doesn't make us great for some of you, but it's definitely a living, breathing entity. And we are constantly looking for innovative ways to make money, staying true to our values. But with the team we have, it's very exciting as well because we're in these markets in non-agency, which is a massive green space that we'll talk about. And if you think about relationships and where they've gotten us and our people, I'd just remind you a year ago, our Investor Day was canceled, and we had an earnings call in late July. And the non-agency markets were still relatively idle. And I believe I said something to the effect on the call that we have reason to believe that we're planning for a big wave of business that's going to come in the fall, particularly in September. And I think some people in the audience probably took that as CEO-speak back then because there just wasn't a lot of evidence supporting it. But our team is on the ground, and we knew what was going on with the builders. We knew what was going on with the brokers and what they were seeing at the call centers, and so we did mobilize. And we were ready, and very few people were at the time. And as a result, we had 2 of the best quarters in our history to wrap up the year, and we gained a lot of market share. I'm very proud of what we've done, and it's really been driven by the team that we have in place, and it gives me a lot of confidence going forward. But it wasn't just the team that we needed to take advantage of the market turn. We needed the infrastructure that we've built over the past few years that I'm really, really proud of. 4 years ago, when we did our first Investor Day, Dash and I, the strategic vision was really, really simple. It was we just wanted to optimize our strategic relevance to the market. We weren't happy with our contribution relative to our expertise. And so we thought about what those competencies were, and we kept coming back to residential credit and ways to leverage residential credit expertise outside of the confines of the jumbo business. And so that resulted in a lot of things. But the biggest thing, obviously, today was our expansion into Business Purpose Lending that led to a great partnership with Beth, Chris, Ryan and the CoreVest team. And as you guys can see now, we've significantly expanded our addressable market, and the earnings drivers are incredibly durable. And the way we make money today is very, very different than it was back then. And our relevance, I would say, has never been better. We're more relevant to the market. Our businesses are operating at record volumes. Our -- we're attracting talent from all over the country as people want to be here. We're ringing opening bells. We're very active in Washington as a market maker with real thought leadership and expertise versus a lot of the [ Wayne Easters ] that Michael is dealing with every day, and Armando. By the way, Michael is here, and he's the CEO of the Structured Finance Association. Redwood has the chair of the Board seat of that industry group. It's the largest and most successful group in the world that supports the securitization markets. So we're there. And most importantly, and we'll talk about this later, we've gotten much more active in our communities, in particular office communities. That's something that's been very rewarding to the workforce and something we'll continue to build upon. So what's next for Redwood? It's a big one. Well, one thing is we have definitely upgraded our expectations and what we're capable of and what we want to be as we look ahead for the next 2, 3, 5 years. We've got a big vision, which, as you can see, is to become the leading operator and strategic capital provider, driving sustainable innovation and housing finance. It's kind of a mouthful. We'll try to unpack it a little bit throughout the day. First and foremost, one thing we want to do is become and evolve to be a world-class alternative asset manager with a distinction of staying true to our markets and our expertise. We want to leverage those opportunities that we've put ourselves in a position to take advantage of today. And we just want to think bigger on what Redwood could be, and we're going to aim much higher and try to deliver more value across the entire landscape versus just in lending or in securitizing. What we've realized, quite frankly, is the folks that we compete with, which is largely banks and private equity firms, they just haven't made to be great operators in the non-agency space. The banks are bureaucratic and are often focused -- too focused on the agency space, I would think. And the PE firms are very good at scripting out winning strategies. But when it comes time to roll your sleeves up and get your hands dirty in St. Louis and Dallas and Denver, we've seen it time and time again, there's just not a lot of success. So when we think about disintermediation and we think about our ability to build out our asset management capabilities, which we're already off to a great start on, by the way, I'll take that bet over their ability to invest in the infrastructure, the plumbing, the people, the relationships and do our business better than we can do it. So the question we keep asking as a company is why not us? Why -- who's better and more optimized to reimagine the non-agency mortgage space? So thinking about scale and vision, which scale is going to be a big theme you're going to hear about today, the vision is inspired by an addressable market that I think should be the envy of the mortgage sector. People look at the agency space, it's massive. If you look at the jumbo space, it's a lot smaller, but that, by no means, defines the non-agency sector. There is some overlap, which I'll talk about quickly. There's going to be some really interesting opportunities coming out of the agency sector. CRT is one. We expect a resurgence in CRT by way of regime change at the FHFA. We think that's a great opportunity for the GSEs to derisk. Fannie Mae, I don't think has completed a credit risk transfer transaction in 1.5 years. So that means not only is the on-the-run production eligible, but there's a huge inventory of agency loans that haven't been earmarked at all for CRT. We can participate there. Conforming high balance, something you probably haven't heard a lot about recently. We're seeing caps to -- potential caps for the GSEs by way of their affordable lending requirements, and there will be percentage caps or at least they were announced that could constrain their overall book of business. We think that means big things for us for the high-balance conforming space. We think that will be the share that will need to be ceded, much like the nonowner occupied space was this year, as those caps went into place. So we're preparing for that. Everybody knows by now, nonowner-occupieds, investor loans and second homes, I'd say there, the private sector hasn't skipped a beat. There were a lot of code reds from the usual suspects that the private sector wasn't going to step up. Not only have we stepped up, but I think that market is probably better served today. And it's just a testament that if you level the playing field, there is private capital out there, like Redwood, that will be there reliably. But our addressable market, as you can see in the slide, is just so much bigger. According to the fed, the single-family housing stock is worth $34 trillion today, with a T, a massive number. And mortgage debt outstanding is a mere $11 trillion, and that's tied to only $9 trillion of household equity of the $34 million. So that, to me, says a few things. Number one, there's opportunities across all cohorts still to better bank consumers and investors. FICO ranges, affordable, you name it. Two, I think all of us, including Redwood, need to really focus on this affordability crisis in this country. And we -- if we're going to serve our mission, we need to be part of that solution. That's something we're going to commit to as part of this vision. But three, and potentially the most interesting, is if you can unlock some of this household equity and pull it out of cash and get it back into the economy, there's a huge multiplier effect that we think is just a tremendous opportunity. And we're not talking about the financial crisis opportunity where you took 80 LTV borrowers and gave them option arms and made them 110 LTV borrowers. We're talking about 0 LTV borrowers. There was a record amount of homes purchased this year with cash by investors and by consumers. And if we can better bank those investors and consumers, it could be just a massive addressable market for the company. And for us, typically, that means home equity lines, second mortgages. That will be part of the solution, but what's very interesting right now is what's going on in the fintech sector. And we've been involved working with a company called Point in home equity options and just more efficient, practical ways to extract that value and make that equity available to homeowners. So there's some very, very interesting things going on there that we think is clearly part of the addressable market that we plan to target. So how will we realize our vision? And what will success look like for Redwood over the next few years? Brooke is going to cover the next year specifically because a lot of people will be most concerned about that. But over the course of time, we've got a lot of milestones ahead of us. And we've tried to provide some specifics through the presentations. But at a high level, there are some common themes of things that we'll be focused on. First, to be transformative, you need a massive addressable market, which I've tried to outline today and which Dash will expand upon. Second, our vision absolutely requires us to be an innovator in housing finance. We absolutely have to be fixing antiquated processes and just reimagining how the non-agency market works. Things like diligence, [ Carlye ], things like trustees, portals, we need to be solving these problems. And what you're going to hear about today is not just talk but action and things that are happening right now with the businesses where we're working to actively solve these issues. Next is accretive M&A. We absolutely will be involved in pursuing acquisition opportunities and joint ventures going forward, and the reason is really simple. It goes back to what I said earlier about being ready for the market turn last fall. Waiting on organic growth sometimes works. But when the opportunities are there, you need to be ready, and we need to be scaled. So we'll continue to focus on accretive M&A. It's absolutely going to be part of something that we do. And finally, and perhaps one of the more provocative aspects of our evolution, is we need alignment between our corporate structure and our strategy. This one has been out there for a while, but I can tell you, based on our planning and the direction of the company, I am officially skeptical that the REIT structure can accommodate transformative scale. It is not a problem today at all. We don't have any REIT test issues. But when we think about the company we want to become, it's important that, that scale can be realized and not constrained. And as things evolve, it may very well be in the interest of shareholders for us to take on a different structure. So with the new vision and putting the puzzle pieces together, I'm not going to go through some of these. We can talk about them off-line. But the theme, overall, is transformative scale, and that's scaling revenues; interest income; mortgage banking revenue; hopefully, fee-related earnings by building out our management capabilities; and scaling our operations; building efficiencies through technology; making sure that we're located geographically in cost-effective areas as we grow; scaling our capital. We really need to improve our turn times in our businesses, which we've done. We need to do more of. We'll be retaining more earnings at our taxable REIT subsidiaries. To me, that zero cost capital, it's the best kind. When you think about the cost to raise it versus just to repurpose it, that's a big opportunity for us in our structure. And then just taking on new sources of capital, expanding our sources, whether that's unsecured debt or preferreds or other structures, I would expect us to be active there as well. Because what we've seen is there is a very specific component of our earnings, which, recently, has been about 2/3 of our earnings, which, on a stand-alone basis, has just been highly sought after and valued by the market. Our mortgage banking and our operating activities, on a stand-alone basis, have a tremendous amount of value. We'll look for ways to scale them. We'll use M&A to scale them, and we'll make sure that our structure can accommodate their growth. Overall, we'll continue to be innovative. And Horizons, as you'll see today, is going to be a key facet of our strategic vision in realizing our goals. So I'm already out of time, so I'll make this as fast as I can. But I just wanted to cover one more thing before I hand over to Dash. We -- a few years ago, when we were road mapping Redwood's course and laying out our strategy back then, Redwood was really guided by 3 principal, competitive forces. And I remember George and Doug, our founders, way back 27 years ago, it was the same 3 things. And when I started, I got the same spiel, which was in this business, there's a lot of fads, there's a lot of different things you can do, but it always comes down to 3 things: speed, rate and reliability. And speed to close, speed to market, low rates, low cost of capital so that you can offer low rates and doing what you say you're going to do and doing it consistently. So that was how the company has always operated, and I have the privilege of offering the fourth new commandment today, which is responsibility. Today, it's not good enough for companies just to make money. It's about the impact that you make. It's how you impact your people, how you impact your shareholders, how you impact society. In investor parlance, this is ESG. For us, it gets right to the mission of the firm. And I'm not sure how many of our competitors have a mission. Here, it's integrated into everything that we do. Everybody knows it. It's to make quality housing, whether rented or owned, accessible to all American households. So we are definitely not there yet. We have a lot of work to do, and we have big problems to solve. But this is why the firm exists. The firm has a bigger purpose than just making money. Responsibility is at our core. It's one of our shared values. And I can promise you, as I close here, that not only will we be a profitable company, but we'll be a responsible one. I'm going to cut it off there. I'm -- blew through the clock. So I'm going to hand it over to Dash, who is going to cover our multiyear operating plan. Thank you.

Thank you, Chris. I would echo Chris' sentiment in saying a big thank you for everyone being here. I heard from a number of you that this was the first opportunity to get together in a group like this in quite some time, and we're quite honored that we could once again be trendsetters there and sort of be ahead of the curve and get everybody together. It means a lot. Chris, as always, has set quite the table for the rest of the day. He covered a lot of really profound topics about what we're hoping to continue doing and evolve into as a company. I'm going to unpeel a few more layers there and tee up the rest of our fantastic leadership team to take the room through more of the specifics of our businesses, the significant addressable market that we see and how we're going to continue to evolve our strategy and really take advantage. So I'm going to start with a couple of slides on the addressable market and weave through how we are intending to take advantage and how that ultimately informs our path forward. I would say a couple of things really is the biggest takeaways for this group. The first one is, and you'll get an appreciation for this as we go through the rest of the session, we really do have a uniquely talented and deep team that is very, very equipped and uniquely equipped to address the challenges and the opportunities at hand. And those challenges and opportunities are large. We have a massive addressable market, which we'll go through, but we are really innovating daily in terms of how we address some of the issues in the market but also take advantage and continue to grow profitably and durably. And that is really, really particularly important for us. As Chris said, as we continue to grow, the sustainability of that growth is also something to keep close in mind. Because of the criticality of our strategic positioning within the market, we feel really, really good about the durability and quality of our earnings as we grow. And that should be something to keep top of mind as well as we go through the rest of the day. So firstly, I'm going to unpack a little bit Chris' comments around the addressable market, the $34 trillion. The $11 trillion he mentioned, obviously, is an area that we've historically played in. As Chris said, we have evolved and expanded how we serve this market, obviously, through our CoreVest partnership as well as other areas. But there is a lot more to do in the space, frankly, when we think about some of the regulatory tailwinds with the GSE footprint, some of the expanded credit products that we will be lagging back into and some of the regulatory tailwinds there with some of the qualified mortgage rules. As well as, as Beth will expand upon, just the tailwinds and where capital is flowing in the business purpose lending market. These are all significant tailwinds for us to gain share in what we would consider the traditional debt markets. But the $23 trillion of household equity, which is really a profound number, I think also indicates a couple of other things to keep in mind as we think about evolving the strategy and growing. First of all is the strength of HPA. Obviously, everyone is aware of how strong the housing market has been, particularly since COVID, with some of the supply demand drivers, but it also reflects a fundamental change in how real estate is changing hands. We have a lot more investors that are doing different things in the space. We have owner occupants moving around the country, and there's a lot to think about there as it reflects some of those changes. And then the types of borrowers who are still very underserved, we'll spend a few minutes on that and the types of borrowers that are being served well today and that we think can be better served through some of the products that we offer. On this slide, I just wanted to hit quickly on some of the tailwinds for further growth. We are obviously already in a very, very large market, but there's a few key themes here that are further tailwinds for growth for us. And I think what's important to take away is that it's not just one driver here. There are drivers from the consumer side in terms of where people are choosing to live and how they want to live. There are regulatory tailwinds, which we'll touch on. And then there are capital flows from the investor market, in general, the amount of capital that's coming into the housing market, how we can serve that capital with our debt products and other types of arrangements, I think, is important. So the tailwinds for growth in housing are multifaceted. We're not reliant on one particular trend or phenomenon. There really are a number of things driving this growth. I'll touch on this quickly. This is a quick look at some of the census data, which just came out recently. What this shows, obviously, is this is housing starts or change in housing units by state over the past 10 years. And what this really reflects, obviously, is a migration to other parts of the country that historically have not been as well populated. And so you see parts of the Southeast, obviously Texas and parts of the Midwest. This really reflects where Americans are moving and have been over the past 10 years. And as we'll touch on more throughout the day, obviously, COVID sharpened and deepened a lot of these trends. However, these have been in existence for quite some time, and this is a big reflection of that. What all this means is a larger addressable market. This peels back a few more numbers, and what we view as a very, very large addressable market for us continues to grow. Fred and Beth will touch on this in some more detail. But obviously, HPA versus the GSE loan limits have been huge drivers of non-agency production in general. Huge capital flows into BPL, like I talked about, have been huge opportunities and will be for CoreVest to continue to expand the product offerings there, as well as other areas, frankly, including other types of investor loans, as well as changes with the regulatory regime with qualified mortgage and other opportunities there to really lag back into our expanded prime products. Chris hit quickly on this. I will as well. This is a quick synopsis of the high-balance volume of loans that the GSEs have had over the past few years. This is another potential opportunity for us. The private markets have been efficiently buying high-balance GSE loans for some period of time. There was a bit of a lull during COVID with some of the stimulus and some of the execution that these loans were getting within GSE structures. But we see an opportunity here for this to continue to grow again just by virtue of HPA, but also, as Chris said, with some of the changing priorities and evolving priorities, particularly with affordability that we expect to see at the GSEs. This is a very interesting slide that just talks a little bit about the range of FICO scores and recent debt production. One -- the big takeaway for me here, if you look, really, over the past few years, even post the great financial crisis, it is profound what percentage of the market is over 760 in terms of the number of loans and quantity of loans being made. Now clearly, as most folks know, FICO scores have generally been going up over the past few years. There's clearly more consumer awareness of FICO, and so FICO scores, in general, for consumers have been going up. But if you look at the chart, what's particularly profound is the 660 and up FICO band, up to 760. That was a significant part of the market as recently as 4 or 5 years ago and has shrunk dramatically. And I think it's a function partly of the pandemic and lending standards and inefficiencies there. But this is a huge opportunity for us, one that we see is potentially up to $0.5 trillion a year if some of these underbanked borrowers, frankly, can get back in the yard, frankly, and be served well by some of the products that we've always been a leader in. The QM rule evolution with FHFA, or excuse me, with the CFPB is a big part of it. Then we will continue to innovate on these products and expect this to be a big part of the story going forward. The next 2 slides, I'll touch quickly. In addition to a lot of the core products we use at CoreVest that we offer for single-family rental, there is a huge emerging market for what we think are smaller balance investor loans, which really we can serve in 2 parts of our enterprise. This slide touches a little bit on the caps, the recent 7% caps for nonowner-occupied loans with the GSEs. These are loans that we are able to purchase from our existing sellers in our jumbo business, in our residential business. which we've already been doing. Others have securitized, and we intend to as well. This is a big area of growth for us, an area where more capital is flowing and where the GSEs are stepping back. So that's a very powerful combination for us. And then specific to BPL, we talk a lot about affordability and we will more throughout the day. But I wanted to touch on this slide because when we think about cyclicality in our businesses, obviously, the mortgage market has certain elements of cyclicality to it. The BPL market and the BPL business has been just an incredible addition to our enterprise because of some of the different trends that drive demand. When you think about housing supply, build for rent, where we are a very, very large lender, that has stepped up to the plate over the last few years and offered supply where the market needs it. And then, of course, the durability of single-family rents. Over the past 4 or 5 decades, even in 4 recessions, single-family rental trends have never gone negative, which is pretty profound when you think about the path of HPA, particularly during the great financial crisis and of course more recently with multifamily trends with the pandemic. The durability of single-family rental trends is very, very powerful, a huge credit positive and tailwind for us. So how does this all add up? I'll spend a few minutes on how big this market is. And what's really most important is that from our perspective, we absolutely have the platform to capitalize on these opportunities right now. As we go through the day, I think it will become more and more clear that our unique blend of capital flexibility, operating capacity, and obviously, a deep leadership team and deep bench really position us in a way that others are not. We are in a unique position to seize the market in a way that, frankly, others are not, and that will become more clear, I think, as we go throughout the day. Particularly adding on and ramping up the Redwood Horizon's effort is a particularly key part of things. And the numbers, as Brooke will elaborate on later, speak for themselves. The first half of the year, our metrics, well into the 30% ROE range for both our mortgage banking businesses and our investment portfolio and how we're allocating capital as well more and more to mortgage banking. If you looked at the bottom-right pie chart, a number of years ago, that was probably closer to 10% to 15%, and now we are closer to 30% allocation for mortgage banking, which, again, reflects the size of the opportunity and the accretiveness of the capital we're allocating there. This all leads, of course, to the evolution of our capital allocation, in general. I won't spend too much time on this, but obviously, the addition of CoreVest and everything we've been doing has made business purpose investing a much bigger part of the pie, which has been extremely accretive to our overall returns. And overall, this flexibility of our platform, we expect, will drive volume growth in both of our operating platforms as well as other products within housing. I won't go through this whole list, obviously, but there's a lot on here, product-wise, that we're in the middle of relaunching right now and that we expect to get into to reflect where the trends are in the housing market. A couple of volume numbers, which I'll touch on here, which we really feel strongly about from a multiyear opportunity. Residential, $40 billion to $50 billion a year. We believe we can get this business profitably that big through technology, through leveraging the relationships that we already have, and of course, with BPL in the $5 billion to $7 billion range. The deals are there. We know the market is there, and it's just about continuing to execute on our strategy and innovating how we think about our capital and our operating plan. We believe these are well within reach from a multiyear opportunity for the company. I'll touch quickly on the next 2 slides. I think the biggest takeaways here are our track record and durability. One of the things that was so appealing about CoreVest when we partnered with them a couple of years ago was the unique institutional nature of the platform that Beth and Chris and Ryan have built. It's a vast and very diffuse market, but it's one that is still relatively inefficient. When you think about the operating platforms there, their level of maturity, CoreVest is, hands down, the cream of the crop as it relates to institutional nature, all the way from the front end to capital markets. Beth will elaborate more on this. But track record matters. And to Chris' comments about asset management and partner with other sources of capital, this sort of durability and growth and the consistent CAGRs are a very, very big deal. Similarly with Redwood Residential, and Fred will go into a lot of the drivers of this. But as you can see, obviously, the operating history of this business goes back more years than this. But again, the maturity of the relationships, the durability, we've been there before. We know our sellers better than anybody. That sort of track record on those intangibles are incredibly valuable and are things that we're already taking advantage of, and there will be the opportunity to do a lot more of that as we continue to grow. I wanted to touch on this slide, just to give a flavor for the sheer volume that comes through our shop every day. This is through August 31, and this reflects basically the single-family rental loans within CoreVest as well as the jumbo loans through Redwood Residential. It's close to $8 billion in 8 months. So obviously, this is a run rate of close to $12 billion for the entire year. When we think about standing up other relationships, other types of capital, it is worth underscoring the sheer amount of volume that comes through our shop and how much of the market we do control. There are opportunities to grow market share, which I'll touch on in a minute. However, this is important when we think about scale and the amount of volume that we touch in some shape or form. This is an interesting slide. I'll call this sort of our version of a sharp ratio, and it does sort of come back a little bit to the diversity of our distribution strategies, which Fred and Beth will touch on as well. We are not a monoline distributor of risk. We securitize. We sell whole loans. We set up innovative other vehicles as well to partner with capital providers. The asset management piece, as Chris said, therefore, from our perspective, is really a logical extension of activities that we're already doing. We already partner with capital providers who use asset managers. And from our perspective, it's a very logical evolution. But the diversity of that distribution leads to durability of earnings. And so what this chart shows is basically a median gain on sale for our business versus a cohort of agency originators versus the standard deviation of those returns over the past 15 quarters. And then if you think about overall margins and just the quantum of margins, this is actually a pretty meaningful difference if you think about the relationship between our absolute returns and the variation of those returns. And so when we think about the cyclicality of the business, it's really important to remember the different drivers for demand in our markets that really do set us apart and are fundamentally different than a lot of what we see in the agency markets day-to-day. This is another provocative slide, which we will talk more about, sort of the drivers. But our market share has been growing, and we feel very strongly that this is a very reasonable path for us as we think over the next few years. We have already said publicly late last year that in the residential business, we expect to grow our market share 4 to 5x, so this is consistent with that. And then in BPL, as Beth will expand upon, just the sheer size of the market that isn't even being addressed. One key difference between residential and BPL here is, in residential, the market is growing, but we're also actively taking share from others. With BPL and CoreVest, many of the loans we're making -- we compete certainly on every loan that we do, but a lot of these borrowers are not financed today. These are part of the $14 trillion of homes that are owned for cash. And so from our perspective, the TAM for BPL is extremely significant and one that we will continue to take advantage of. So how are we going to do it? We're going to do it in a few key ways. We're going to continue to leverage our sourcing channels, close to 200 sellers and over 5,000 borrowers within BPL. Each of those are growing every day. Our processing efficiency, getting more loans through the shop. We talked about the $8 billion. We've had 3-year CAGRs of -- in the mid-20s for both businesses, and we expect that to continue. Speed of service, as Chris said, we're going to touch a little bit later in Fred's section on Rapid Funding, where we are funding our sellers up to 80% faster than the market is. There are similar efficiencies within BPL as well in terms of how quickly we serve our borrowers. This is particularly powerful. And then, of course, the multichannel distribution model that I talked about, which really leads the durability of returns through cycles gives us more than one option to distribute our risk and partner with other capital providers. I'll touch on this quickly, and Brooke will elaborate, but the result of really where we've taken the company over the past year does reflect a fundamental change in revenue mix. This touches a little bit on Chris' remarks about corporate structure. And while we do have plenty of room on our tests, et cetera, if you think about where this can continue to go, as we reach our volume and market share goals, you should expect to see more and more of this trend. We have a very strong investment portfolio. We raised our dividend by $0.03 a share or 17% yesterday, as folks know. So we feel great about the earnings power of the investment portfolio. But as an adjunct to that and as a real driver of growth, mortgage banking, the ROE opportunities that we see there are extremely compelling. And so we would expect to see more of this trend going forward. I won't spend too much time on this slide. Brooke will elaborate more in terms of the what, but our strategic vision is going to be about transformation and innovation and continuing to drive scale. We're going to continue to disrupt and capitalize on some of the market opportunities that we've been talking about. We're going to continue to drive technology, both organically and through partnerships with Horizons. Obviously, the market and wallet share is a big deal. The sustainable growth we talked about, how uniquely we're positioned in the market, we feel, is a real tailwind there. And of course, continuing to evolve our investment portfolio, how we allocate our capital. We already have a very, very unique investment portfolio, which, from our perspective, is not replicable today. And you should continue to expect to see more of that from us in terms of the quality of the cash flows that drive our dividend. I'll close on this slide. Like Chris, I'm way through time. But a couple of key transformation goals and milestones that I want to hit on. With Horizons, we'll hear a lot more from Ryan about this is, as you know, we have $25 million allocated to Horizons today. We see a path to driving that to $100 million by the end of next year from an allocation perspective. Ryan will talk a bit about the opportunities that we see and why that makes sense. Our mortgage banking businesses, we want to enter 2023 in a position to double our volumes from this year. So we talked about the significant growth that we've seen that will be a key operating and technology goal for us in 2 years to be able to double off of the growth we've already achieved. We want to continue to expand our investment portfolio, which we feel like we can do, through largely organically created assets as well as other avenues for sourcing. Asset Management, like we talked about, we are actively talking with several parties about that now and expect to do something there in the near future, which we're very excited about. ESG, like Chris spoke about, being responsible in how we invest and how we run our business; and then, of course, from a corporate perspective, continuing to think about structure and continuing to rely on M&A and other strategic partnerships to continue to grow and evolve. So with that, I will stop. I'm through time again, I'm sorry, but I want to hand it over to Beth O'Brien, the CoreVest Chief Executive Officer.

Hi there. Thanks, Dash. Welcome, everyone. I'm pretty excited for my first Investor Day and thrilled to have actually humans in the room. It's great to meet most of you for the first time. Anyway, I'll get started. Really, there's 3 things. If you all leave the room today or get off the web if you're watching the streaming with just 3 takeaways, I will be very excited. And that is why business purpose loans? Why CoreVest? And why now, right? I think that really gets to the crux of what we're trying to get across. And I think Dash did a fantastic job and Chris on setting up a little bit of why business purpose loans. Like why is that so interesting to the market right now? But I think I want to dig deeper into why CoreVest and why now, right, because these are fantastic loans. I've been deep in the business loan space for the past 11 years, which is almost longer than anybody else in the space has been doing business purpose loans. But right now, at this moment, we have this unique opportunity where we have this huge addressable market and some very significant tailwinds, right? It's not just that the market is growing, but our ability to access the market is actually getting much sharper and much finer. And we have this fantastic platform that, vis-a-vis other business purpose loan platforms, is actually particularly mature. I wake up every morning thinking it's still start-up, which is probably good, but it is actually more mature than any of the other platforms. And what do I mean by that? What are we doing that like a start-up isn't doing? We have 8 years of data where we have measured everything, where we have taken all of that information and built this large data warehouse. We know exactly where things are hung up. There's a reason we close loans faster than anyone else because we have shaved each little piece of it. So the market views us as someone who's going to be there for them, right? And not only -- we have such a deep bench of people who've been doing this longer and have been doing this deeper than anyone else. We know the clients. We know their needs. And because we have this amount of time with them and the technology that's built around everything that we've been measuring, we're able to execute just that much better. Even our front-end marketing is incredibly data-driven. We're measuring data in the market. We're pulling publicly available data. We're comparing it. So we don't just focus on market share. We're focused on wallet share, the individual borrowers. Like where are we? How deep? How much have we penetrated? And we have this unbelievable human capital that is built around and has built this system and has iterated it over the past several years. What are we doing going forward? Obviously, we never sit on the technology that we've built. We are innovating every day to build it a little bit at a time but also in revolutionary ways. And so we have this unbelievable end-to-end system, but we're still building all the technology on top of it. And what does that mean? We're improving the customer experience. We're building out real-time portals. We're addressing all of the data warehouse that we have and how to actually incorporate that data back into each of the management decisions that we're making. So that everything we're doing is being -- it's being informed by our own experience and by our external data, internal and external together in the data warehouse. And you'll see the next slide, we'll show you what we're doing with that type of thing. You can see that it's a highly fragmented market, you can take away from this. But we know in each state, in each borrower, in each location who the different lenders are to each of the different private borrowers. And we know whether we're addressing it. We know whether somebody has no debt at all on their properties. And we're using this data-driven approach to actually drive the front of the volume -- the front of the funnel. And so we have this end-to-end system. And you'll see later on in the Q&A and some of the stuff we talked about in capital markets, we know when we're pricing our bonds which of these assets is the good asset, which are the ones that the rating agencies have given levels on, and that's being incorporated back into the front of the funnel. So that we have this end-to-end, data-driven analytical approach to everything that we do. So this slide will take us to the why now, right? This is the time where you have the addressable market growing. Just for our business purpose loans, we're talking about $5 trillion in this market. No one has even scratched the surface, really. There are still people who kind of see business purpose loans as somewhere between residential and commercial. Is it one? Is it the other? Is it neither? I actually think it's a bespoke product that actually is addressing a part of the housing stock that isn't adequately addressed by anyone. So I do think that we're talking about an asset class here that has grown significantly over the past several years but will continue to grow because it is its own asset class within the residential space. And I think that's something that sometimes is lost because of the different regulatory implications, the different ways that banks look at, the different way the other people -- we're agnostic to that, right? We're going to address the needs of the client in this market that's growing exponentially. Here's another slide that kind of gets to the why now. This is the capital inflows, right? I cannot tell you how constructive the capital markets are right now to this strategy. And because the capital markets are so constructive to the strategy, it's enabling us to provide better cost of capital. It's giving us innovative ways to finance what we're doing so that we can get to market faster on different things, and it's allowing us, hopefully, to expand our channels. So what do I mean by channels? There's a sourcing arbitrage going on right now where you can actually not just generate the assets which we've been doing for years but also purchase the assets from other people that are generating but they can't package it and do things as efficiently as we do. And this also has the added benefit of being deep in the DNA of Redwood, right? Being able to go out to the market, source loans that have already closed, aggregate them. It sounds just like the jumbo business, right? And so we are able to take what's going on in the capital markets right now, take our own expertise across the firm and really expand, hopefully, the channels that we're seeing in the business purpose lending space. It also enables us to address the next concentric circle of borrowers and not just the larger portfolios or the medium-sized portfolios but also the single asset. And that's what you're going to see in these DSCR loans that are coming on. You see it in the caps, the changes in the regulatory space that are really opening the channels for this type of loan. And this is a 30-year loan, not the 5, 10, 7 that we've been doing. Just to give you a little bit of a snapshot on the numbers of how constructive this is, we've been balance sheeting our bridge loans, right, at a particularly favorable ROE. But once you actually address -- you go into the securitization markets on the same type of assets, you can unlock approximately 10 points more of ROE. And we think that that's kind of a game changer and being able to address this market. These are illustrative numbers, but they're pretty consistent with what's happening right now. Now I want to move a little bit into technology and some of the other things we're doing, just to be more efficient. And just, again, to give you an idea, we have currently, I believe, one of the best-in-class technology programs in the market. We are end to end. We're in one system. It's highly customized for our business. And so why am I standing up here saying we're working on technology if we have such a great platform, right? We're taking that platform and we're putting on top of it visualization techniques, abilities to use the data better and probably, most importantly, the ability to give borrowers a way to interact with us the way they want to interact. And so lots of companies have gone out and built these fantastic systems. But really, if you're a borrower and you're on the run, you're mobile-first, you're out in the field, you're probably carrying a hammer, you want to interact with us the way you would interact with your bank. Sometimes it's on your phone. Sometimes it's on the Internet. Sometimes you make a phone call. And we have to give people the ability to visualize all of their loans, all of their asset management information and then a bunch of other little perks and stuff that we've put in there to make it usable and fun and just a great system. We're also, as I mentioned earlier, using our data warehouse, which is everything that we have measured for years, to drive the data-driven approach in each segment of our business. And I cannot tell you how much better it is to have your own data mixed again with data that we buy that's publicly available but really using your own data to optimize what you're doing. This kind of gives you a little snapshot of what the portal actually looks like. Again, this is all about interacting with us the way the customer wants to interact with us rather than us kind of putting out there this idea that you have to go through our workflow system. And the early returns are very favorable. It's actually out with several customers right now. It's completed its end-user testing. And I think this is the type of project that's going to take our scalability through the roof because this -- everything now is digitized. And the amount of time it takes to perform each function has been cut dramatically, not in half, but like 90%, 80%, huge percentage scalability. So if you sum it all together, we've done a fantastic job in the past, having kind of what I think of as evolutionary growth. Those [ cages ] that you saw are really I talked about, nothing to sneeze at. That's kind of just us iterating on a daily basis, trying to make what we're doing a little bit better. But our vision right now and our focus is on revolutionary growth as well. How do we expand channels, not just do things faster? How do we come up with new loan products? Do we have these concentric circles of what investors need? We've always been able to respond to their needs. What is the next need that they have? Is it slightly larger multifamily? Is it student housing that looks like our portfolios? Is it product -- is it housing product? Or is it the type of loans on the housing product, too? And so we're looking to innovate in each of those places. And then what's driving that and what's driving the cost of capital to do that are some of the new innovative financing structures, and I do really think we're ahead of the curve on each of those structures. And then finally, there's some of the technology coming out of the Horizons initiative that we've been able to use. I mean, it was very heartening to me that the first 2 investments were actually technologies that were built by our borrowers in the core of its portfolio that they were using to help their businesses. And so when you think about the sourcing and being able to help your borrowers who are building their own technology to work in the space, and we can fund them and then use the technology and the adjacencies to actually benefit our own business and then, hopefully, some of our other borrowers, right, the virtuous cycle that we're building through these technology investments is pretty -- it's really pretty spectacular. So what I'd like to do now is invite Chris Hoeffel, who is our President; and Ryan McBride, who's our Chief Operating Officer; and John Prins to moderate and do a little Q&A around the business purpose lending space.

Thank you, sir. So I guess we can jump right into it here. Why does there seem to be a surge in interest in the rental housing sector? And how has that impacted demand for business purpose lending?

So I do think there's a surge. I think the growth was already happening, though, about 2 years ago. There were a lot of demographic trends and other things in the market that were causing this growth, like household formation rates, like the fact that -- I don't know, my parents definitely bought their cars, and we mostly lease our cars, right? And my daughter -- like my daughter leases a dress to go to a wedding, right? She's very rent the runway. And so that whole age group, it doesn't have the same view of rental housing that maybe people have had in the past and see it as less encumbered to their lifestyle. And so you have a combination of people who -- where you have a lot of causal information, and so they're -- and the -- they don't have the capital to move into a brand-new home. And then you have others that don't want to actually own a home. And then you had COVID happen right on top of it, where it didn't create these trends, but it absolutely accelerated them, especially as people wanted to have a little more space, a little more work from home, a little bit more of a backyard, right? And so you have this acceleration of, I think, something that was already in place.

Absolutely. And speaking of COVID and the pandemic last year, how did the BPL sector perform during the pandemic slowdown? And do you guys have any concerns about the balance of this year?

Yes. I'll take that, John. As Beth mentioned, the COVID disruption actually helped the business purpose loan or the SFR market in a lot of ways. You already had an affordability issue with housing, and household -- house costs have gone up, which may -- has moved more people into the rental market. We're about 65% homeownership, which is down from the peak of 69% before the last housing crisis. You've got a lot of people moving or staying in the rental sector, and a lot of these people want more space. They want to move out of urban areas into secondary markets. That really benefits the SFR sector because we are not only in primary markets but secondary markets. People want more space. They want that third bedroom. And about 2/3 of SFRs have 3 bedrooms or more as compared to 11% for multifamily assets. So there have been a lot of drivers of people into the SFR sector because of the pandemic, and so performance -- demand for the sector has been very good. In terms of loan performance, we saw very little disruption in loan performance during the COVID crisis. Our borrowers only experienced the low single-digit collection losses during the pandemic, which means they really didn't have much issue servicing their loans. That makes sense because if you look at -- the average rent for a single-family rental home is about $1,500 or maybe a little bit less, which means those are households that are earning probably $50,000 or more. Those households experienced single-digit percentage losses in jobs during the crisis, so it all kind of flows through that we didn't see a lot of income disruption, so we did not see a lot of rental disruption. So we did not see a lot of debt service disruptions. So our loans performed pretty well during the pandemic. We didn't see any real problems. We had a few instances where borrowers came to us for forbearance. But in every case where we did offer loan forbearance, those loans are now performing again, and then the repayment periods are fully back on track. Our bridge loan business, we haven't spent a lot of time talking about the transitional loan business, but that's a big part of our sector. And even those loans performed pretty well during the pandemic. We -- there were some supply chain issues, and work slowed down, so it took a little bit longer to do a fix and flip or to build a property. So we did some extensions, which is sort of the norm for bridge lending, but we saw virtually no defaults that we could tie to the pandemic. So overall, I think the BPL sector performed very well.

Great. So changing gears here, I know, Beth, you spoke about it briefly earlier as far as technology. How is technology impacting the operating platform here? And do you see opportunities for productivity improvement through automation? And then are there any synergies with Horizon?

I'll go ahead and take that one. As you probably heard from Beth's presentation, technology really is in our DNA. When we started the company 7, 8 years ago, we were intentional about how we set up technology. We built our systems in the cloud. We wanted a very flexible platform that we knew we were going to have to build because there were no off-the-shelf components that we could use, so we really had to be smart about that. Everybody had a laptop. And it's really paid dividends in terms of how we've been able to scale and accommodate the growth that we've had across the board in our platform. Incidentally, it was also very effective when we had a business disruption where everybody was already in the cloud and had laptops, and they could work from home. So it really allowed us to continue with the platform operating without missing a beat. And as we look at what's ingrained in the company, you go group by group, and this is not an exaggeration. Every group probably has a dozen or more projects that -- there's a little bit of elbowing to get their projects done first because people are so excited about the technology. The automation projects, in particular, are very important to us. We can take a lot of energy that's expended on keying in information and other things that are sometimes grotesque. And if we can automate them with APIs, for example, with our appraisal vendors, that means our underwriters aren't having to key in APNs and all kinds of other information that is easily to get that figured and really disruptive to the business when that happens. They can spend their time underwriting, talking to clients. So there's a lot of things that we can do across the board to really enhance what we're doing. The cool thing with Horizons is we can take the wish list from the businesses, not just CoreVest, but Redwood Residential and really go out there and use that as a template to start looking for companies that could be additive to the platform. And then vice versa, when we're out there, we're talking to really interesting entrepreneurs and companies. We can look at these opportunities and bring it back to the platform and give people tools they might not have been thinking about.

As far as looking forward, what do you guys see as some of the key opportunities for growth in the BPL business? And are you exploring any new products or sourcing channels?

Well, as I said earlier, sourcing channel is absolutely something that is very front of mind for us. We absolutely see us -- because we're so centered in the capital markets, we see ourselves as being able to do opportunistic purchases of the business purpose loans and put them into our securitizations. We've always done that from the beginning. We've always had some opportunistic purchases, but we are really focused on building those channels out much deeper now. And then as I -- also, we're looking at some concentric circles on different types of products that we still consider business purpose loans, but they haven't built as much of the portfolio like we did a couple of years ago when we focused on build to rent. And I think we are one of the largest financiers of the build-to-rent market right now, which is we're looking -- then we'll do the next thing after that.

Yes. We're in the midst of doing our first securitization of transitional loans. And that, we anticipate, will give us the bandwidth to do a lot more transitional lending, not only for a single-family rental fix and flips, but also getting into the multifamily sector, which is something we've been involved in. But I think as we're able to generate more efficient capital and lets us compete more effectively for different types of product.

And one of the attractive aspects of BPL lending is how efficiently the loan assets could be financed. How have the capital markets for BPL loans evolved over time?

Yes. So we've -- as I mentioned, we're doing this securitization of transitional loans, which we think is going to give us the bandwidth to do a lot more loans, not only loans we're originating, but loans that we can buy from third party. So Beth brought this up during her presentation, but we're increasing our sourcing channels to bring in assets from third-party originators and marry them with the assets that we're originating ourselves to have much bigger capital base to securitize. So that's one area where we're growing. And the efficiency of the capital markets is giving us the capital to do that well. We're also looking at providing these 30-year loans to small investors. 80% of single-family rental properties are owned by people who have 5 or fewer homes. So that's the biggest part of the addressable market. Our portfolio product doesn't necessarily address those people with these small 30-year investor loans do. And with the ability to now both warehouse and securitize those loans, it gives us, again, very efficient capital to go after what is the largest set portion of the single-family rental market. And we think that's one of the avenues for exponential growth in our sector.

I mean, investors really like these loans. I think, in the past, they had shied away from them a little bit. But now people are putting them in with non-QM, with other type of investor loans, and you're seeing more and more of it in the market in actually a bunch of different types of securitizations.

So here we are 2 years into the acquisition of CoreVest by Redwood Trust. How has the integration gone? And have there been any significant changes to the CoreVest platform?

The platform itself hasn't changed very much. We're still offering the same products. We have very similar processes for underwriting. Obviously, they're improving over time. We've talked about a lot of the innovations and technological advances that we've made over time, but we've been able to leverage off the infrastructure of Redwood Trust. We have their senior management. Their alignment of interest on our growth plans, HR, legal, treasury, that type of thing has been very beneficial for us as we've grown. We've also been able to integrate some of the people from the previous BPL acquisitions that they've done. And then we're looking at a lot of M&A opportunities through Horizons, through Redwood. So it's been a really strong alignment. I think the integration has gone very well, and it just set us up to be able to grow the business going forward.

Yes. I think we were lucky that going even into the transaction, which it's crazy, we were only -- it only was a couple of months, and then we all locked down. We didn't even see each other for 1.5 years. But obviously, we talked every day. But we were lucky kind of going into the transaction that we had a very similar -- we already had a very similar approach to the business and a similar set of DNA in that we -- Redwood was always in the risk and wanted to be in the risk pieces. And CoreVest has always originated every loan with the intention that we're there the day that it pays off, right? Because we did hold the portfolio of all of the B pieces and the investments and everything else. We never actually offloaded the risk. And so I think it's been really nice that we've had a similar viewpoint and had a similar viewpoint going in as to the creation of these assets being part of the portfolio management system that was already in place. And we always viewed ourselves as the creator of positive risk-adjusted assets, and I think that Redwood was in the business of aggregating these positive risk-adjusted assets. And it actually worked out really well that we were all on the same page from the beginning, and so the integration has been significantly smoother because of that.

Yes. I think one note I would say, too, is culture is really important, particularly in business combinations. And there's certainly been a meeting of the minds in terms of the growth prospects of the company. But what's really important, particularly now, is how the employees feel about a business combination and some of the benefits there. We were fortunate to have been backed by a couple of private equity-style investors, which, although very good people, weren't necessarily focused on necessarily employee benefits and things like that. I think Redwood's been really a breath of fresh air for a lot of the things that are important to employees. And particularly now when we're in an environment where there's a premium on getting good employees to join you and being able to offer programs that Redwood has been offered and then rolled out to the CoreVest program, that's been very helpful for us to staff up and attract key talent.

Absolutely. I think that's all we have as far as his time, but I appreciate you all jumping up here. And going to pivot here and introduce Fred Matera, the Head of Residential Lending.

Thank you.

Good afternoon, everybody, and thanks for coming. It's nice not to be on Zoom. I've had -- I've been associated -- have the good fortune to be associated with Redwood Trust for -- since '08 in various forms, various roles. And I have to say this is, by far, the most exciting time in the company's history. It's -- from the scale of the opportunity, to our position within the marketplace, to our competitive advantages, our strategic vision that you heard this afternoon, Redwood Trust is really uniquely positioned to achieve transformational scale for the company and innovative change for the marketplace. So the themes I want to leave you with on the residential side this afternoon are the market's never been bigger. The opportunity for us in residential has never been bigger. We've never been better positioned to take advantage of that opportunity. Our culture enables a level of customer service that differentiates ourselves from the competitors and allows us to attack certain opportunities that we'll talk about here in the slides. Our operating efficiency has never been better, and we're now beginning to lead the market with innovative technology to help serve our clients. So let's talk about the opportunity. As we can see, we have some real tailwinds that are driving us that Chris and Dash spoke about. And I remember, back in 2013, I was speaking at an RMBS conference. And Redwood Trust had issued the only -- we were doing the -- we were the only ones doing RMBS securitizations at the time. And someone asked a question at the end saying, "You must feel so good about having 100% market share." And I said, "No, not really." I don't have to have a smaller market share of a much bigger market. So -- well, here we are now. And if you -- let's see. The market is a lot bigger. Issuance in RMBS securitization is probably going to be about $70 billion. That does include -- loans that have fallen out of the agency execution, like high-balance loans that Chris talked about and nonowner-occupied loans as well. But the markets exploded from those days of 2013 when we probably did a handful of billion, and now we've got $70 billion. And it's really double from the last full run rate was 2019, so we're -- 2021 is expected to be double of 2019's volume. So the market opportunity is really big. And it's not just on the securitization side, as you see. The origination market in jumbo non-agency is about $0.5 trillion. And our role is really to be right in the middle of that, to help our originators, our loan sellers originate the highest-quality loans possible with the best-in-class market standards for manufacturing those loans. And we do that, it sets us up to take advantage of opportunities that I believe our competitors really can't. The other interesting thing you heard earlier, but we'll take a look at this map, the jumbo market used to be a coastal market. But now with home price appreciation across the country, more, more regions, more states, more ZIP codes require jumbo financing now to drive homeownership and drive their housing market. So it's really a pretty cool fact that more and more of the country is now -- we're seeing a much more diverse distribution. It's not just a coastal market, and that allows for expansion of the non-agency market, for sure. Another trend that's a tailwind driving the opportunity is the new CFPB guidance on what constitutes a qualified mortgage. It really results in more loans that used to be considered nonqualified mortgages, non-QM, can now be considered qualified mortgages. And QM loans are just easier to originate. They're easier to securitize. And what it does is it takes some of the -- what was non-QM and brings it into the QM market, which is really our -- has been historically our core market. So it provides more opportunity for Redwood Trust to effectively get expanded credit loans, which tend to have higher margin and actually much higher demand from the investor base. So we're pretty excited about this. This is an interesting slide. You can take a look at on the material, but it gives you a sense of -- I think most Street estimates the non-QM market would be about $40 billion if it looked like -- without the new guidance. So this shows you the $40 billion and kind of gives you a little bit of sense of what makes up the non-QM market. But certainly, 10 to 12 of those are considered QM now with the new guidance, and those loans look a lot like the pre-Dodd-Frank loans that Redwood Trust was doing. So we're really comfortable with those loans and excited about purchasing them. This is an important slide, and I think a lot of the things I talk about after this slide will be how to take advantage of this, which is deposit growth. Deposit growth is just far exceeding the ability for depositories to make loans and to buy loans, and it's also true -- it's not on this chart, but it's also true on the -- in the insurance sector as well. Insurance companies have tremendous liabilities. They just can't get enough assets. But this is an interesting chart because it just graphically shows you, in the period of quantitative easing, what that did, all the purchases of government securities and mortgages create -- eventually find themselves in the deposit base of banks, and then they just -- it's just overwhelming. They can't source enough assets. So that's where Redwood Trust comes in. And a lot of the things I'm going to talk about now allow us to attack this opportunity and I think better -- certainly better than our competitors can. Basically, what we do is we locate, source and provide market-leading, trusted underwriting guidelines for our loan sellers so that they can go and originate these loans to the highest quality standards. And what that does is it allows our investor base to have a high degree of confidence in the product that we sell them, and it translates into, I think, a dominant position in the whole loan sector of the market. The whole loan buyers, they -- when whole loan buyers look at loans, they look at them on a loan-by-loan basis. It's a little bit of a different analysis from securitization. Securitization is really a statistical risk analysis of a pool. Whole loan buyers evaluate the risk on a loan by loan, credit by credit. So our manufacturing standards of our loans, we manufacture them all to withstand the scrutiny of the whole loan buyer as opposed to our competitors. And that's hard to replicate. And it really starts -- how we do that. It really starts with a lot of the things on this slide, and I hope we get into them on the Q&A, but it's about our culture. Our culture allows us to have a very high touch, very interactive relationship with our loan sellers and our investors, and we can tailor solutions for our loan sellers. And the results in files that are well laid out and what we constantly get feedback that it's easy to buy Redwood loans because the files are in such good shape, there are fewer conditions, et cetera. So I want to talk a little bit -- that will be something we want to get through because it's really a differentiating factor, and you can't just create that out of thin air. You might be able to create a securitization platform out of thin air, although easier said than done, but you can't create a platform that can do what we do here because it's about relationships, and it's about the culture of the people buying in because you have to achieve the operational excellence. Or otherwise, it's too expensive. And we'll see that -- I have some slides coming up that we can talk about that a little bit. Our process also results in what we believe is the highest-quality loans from a credit performance standpoint. Redwood Trust's reputation in the market is certainly to produce the highest-performing loans on a credit basis. That's our view. This is data from June 30, and you can see our delinquencies are better than the market. It says -- that includes just our securitization supply, but our whole loans are running similarly, if not slightly better. So that is representative of our production, and we're really proud of that. That is not going to change. It hasn't changed in our history. We have the, we believe, best quality from a credit standpoint, and we take great pride in that. And what that does is, again, it allows us to address that gap in deposit growth versus portfolio growth, and it allows us to be the whole loan seller of choice for depository institutions. And it's a giant market. If you go back and look at that slide, there's multiple -- $3 billion to $4 trillion of a gap there, so it's pretty significant. And we're attacking that opportunity big time here. So you can see on this slide what we're talking about. We're -- historically, we've sold half of our loans that we purchased as securities and half as whole loans. Right now, the second half of the year, it's running above 60% in the whole loan form. And we evaluate that on a -- not just on an individual transaction by transaction standpoint, but we do it as building whole loan distribution strategically. Generally, the execution is similar, I would say, over -- on average. Sometimes whole loans are better, sometimes they're slightly worse, but we have made the investment really since 2013 to make -- to invest in whole loan distribution. And now since QEs -- since the latest iterations of QE, it's really created a big opportunity for us. So we're -- you can see that here. We expect to sell a lot of whole loans. So if you look at market share, and I know Chris said we have 2.5% market share, which is great, and that's basically using a denominator of the entire origination, the 500 -- the $0.5 trillion of originations. But when you look at securitization, about $40 billion of securitizations have been done in the nonagency space. I think we've done about $2.5 billion so far this year. But if you look at what we could have sold as securitizations, what we chose as whole loans, it's really -- I think it's closer to about $7.5 billion. So our market share on the securitization side is actually quite high. Again, these are unofficial numbers, and these are numbers in talking to leading research professionals on the street and information we gather. But our market share of the securitization market's actually pretty quite high. So I think when Chris and Dash and then Brooke talk about our ambitions for growth and market share, I see it as very achievable. I really do. I think we've made big strides already in the last, call it, 15 months. So with all of the things we do, how high touch our process is, the real question is, is it efficient? Does it cost too much to do all this? Is it slow? Because again, we're -- it's a much more involved process than any of our competitors. Well, the good news is we take operational excellence at the top of the -- one of the top of the list of our priorities here. And the great news is we've never been more efficient. Our cost per loan has never been lower. Our efficiency metrics have never been higher, and our turn times, how long it takes us to get a loan through the third-party due diligence cycle has never been faster. It's market-leading. It's about 2 weeks. That's really a dominant position, and it gives us a huge advantage to buy loans and sell them more quickly, less capital, less risk, more operationally efficient. So even though we have a very involved process, it's extremely efficient. Part of it's culture, part of it's technology, part of it's our outstanding Chief Operating Officer, who you'll meet in a few minutes, Carlene. But it's really a team effort, and it's hard to build. So I really want to leave you with this isn't -- this is something that we've been working on since 2010, really the spring of 2010, and we haven't always gotten it right, but I believe we really have it right now. So it's pretty -- again, really exciting stuff. And lastly, I think this is something I think I'm most pumped about actually is technology. We all see the headlines in the fintech space. We know that technology in this economy drives enterprise value. Period. End of story. It helps you be operationally efficient, helps you scale, but it also helps you acquire and retain customers. So we're doing some really cool things on the technology front and where we work with Ryan and Horizons, who you'll hear about shortly. But that's an exciting venture, and it really helps us not only create more efficiencies for our existing operating businesses, but it also can help us through certain investments spawn new operating businesses for Redwood Trust. Chris alluded to a very expansive vision. What Horizons does, it, again, it helps us be more operationally efficient with certain investments we've made, but it also can help spawn new operating businesses. So we're really excited about that. Our IT group works closely with Ryan and our residential management team. So we're doing a lot of cool things. And I was checking my e-mail just before I came up, and I didn't see it, but I'm going to preview it anyway. I don't care. So we're -- our latest Sequoia transaction's going to introduce blockchain technology, be the first RMBS transaction with blockchain. And basically, we made an investment in liquid mortgage through Horizons that we disclosed. We've been working closely with them to use blockchain to help the mortgage ecosystem be more efficient. And the mortgage market, for better or worse, does cling to old processes. But Redwood Trust is really in a unique position to create actionable solutions when you think about it. We're in the middle of the ecosystem. We're not sitting in Silicon Valley looking at the industry saying, these guys don't know what they're doing, we'll just reinvent everything. We talk to originators. We talk to rating agencies. We talk to warehouse providers. We talk to third-party due diligence firms. We talk to custodians and, of course, end investors. We touch all of that in our process of locking a loan and selling a loan. So we can see what the problems are. We're in a position to actually create real change and real value for Redwood Trust, for our franchises and on the securitization side, both BPL and residential, and also help move the industry forward. We alluded to it a little bit in our white paper on blockchain in the spring, but we are going to introduce blockchain technology in this latest deal. [ Fit ] should have a presale report. So I'm going to point you in that direction. I thought I could say it was already out, but it's coming out. And we're really excited about that. That's a huge deal. It's a big deal. And the other things we're doing on technology front are internal in terms of creating operational efficiencies. Very similar to the things Beth was talking about. It's one of the things we loved about CoreVest, frankly, is when we looked at them, I mean, the operational efficiency, the technology, et cetera, and we really -- we have taken that to heart big time in the last, call it, 18 months in residential, and we're full speed ahead. And we've got innovations in our loan acquisition systems. We've got customer-facing solutions, technology solutions, such as Rapid Funding, which allow us to purchase loans more quickly. And we've got a lot of other things in the hopper. I'm going to take the entire time, so I'm going to stop. And right now, I'd like to introduce Carlene Graham, who's our Chief Operating Officer in Residential. Jon Groesbeck is our Head of Business Development. And we're going to answer some questions. Collin Cochrane, who's our Chief Accounting Officer, will tee it up for us. So thanks again. Great seeing everybody.

Well, thanks a lot, Fred. You guys definitely have a lot of really interesting and exciting stuff going on in residential business, and it's great to be up here today to talk to you guys about it a little bit more. So why don't we dive in? I'd like to start out exploring Redwood Residential's position in the market. Can you talk about what sets us apart as a counterparty for loan sellers versus our competitors and what makes Redwood different?

Well, I would start out. What makes Redwood different is that we are a high-touch client service model. That's very, very important to us. I mean, we work very closely with our clients, very interactive, very great -- good at responding. And what we're always trying to do is get with our sellers so that we can get to a place where it's a win-win, where we get to the place that both sides are able to accomplish great things in terms of doing jumbo loans. We have -- we look at each loan on a loan-by-loan basis. And each one, we do with great thoughtfulness and care. And we have a dedicated team that we give to all -- each of our sellers get a dedicated team, highly seasoned underwriters, customer service reps and people that work with our jumbo sellers to make sure they're successful in the origination and the sale of jumbo loans to us. We do a lot of training, a lot of handholding. And it really does matter. The people side does matter. And you add on top of this, Redwood makes the final -- so as Redwood Trust, we make the final credit decision of buying a loan. When I say that, we make the final decision to buy the loan. They close the loans, we buy them. But we make that decision where a lot of our competitors will utilize a third-party due diligence for them to make those decisions, and they're not always great decisions. Our clients are used to our consistency, they're used to the model which we do and controlling that process is what gives them great confidence to continue to originate and sell to us, and that has been a big driver of our success.

I'll add to that. I think the short answer to that is our people. I think we have a best-in-class team. I think we've built a best-in-class process. Another example of that is our Rapid Funding program. We rolled out a Rapid Funding program to our sellers, and that allows us to fund our sellers in 3 to 5 days, much faster than the market. That allows the sellers to clear their warehouse lines faster, give them the ability to originate more loans and therefore, grow their business. We've seen a huge success since we've rolled out that program. And I think year-to-date, we probably fund it close to or a little over $0.5 billion through our Rapid Funding program.

That's great. So given all these strengths, how difficult do you think it is for competitors to duplicate our approach? And are the advantages that we have defensible or easy to replicate?

Well, if we look back on historics, I think we've seen this. We've seen players enter the market that have entered the market on the heels of Redwood. I think that it is very difficult to do what we do every day. I think the challenge is, is that we built a team of professionals as well as some very deep relationships. We've built a process that is both scalable, economical, and I think that we intend to grow off that platform. It's not a hard -- it's not a difficult culture, but it's very hard to build and sustain. So therefore, I think it's difficult to replicate.

Yes, I would add that one other thing that separates us, history does matter. And we have -- from the time that we got back into the private label business, we have produced the highest quality, the highest credit quality of product out there in the market right now. And we put together packages on which -- whether it's a security or a whole loan buyer, it's always the highest level of any type of quality. We stay at this best-in-class. We're able to do that while still maintaining high-touch relationships with our sellers, still being able to work with them on their needs. And you pull that all together, and it's a win-win. Our clients do well because we're very -- we're able to buy a lot of loans from them. And Redwood does better because we benefit from having the highest quality, best-in-class mortgage product out there.

I think jumbo loans are still very complex to underwrite. They're very complex to manufacture. And I think one thing that Redwood does that is not as prevalent in the market is we work with our sellers. We work with them to problem-solve. We work with them to establish processes that are both seller-friendly, efficient and cost effective. Our run rate is lower than it's ever been, right? It's -- we're doing double the volume than we did in 2019 with about 30% fewer head count.

That's right. Double -- is this on? Double the volume with 30% less head count. So it's really important that we can really scale this business. We're not -- we can get a lot bigger. So I think, again, when you see some of these projections and our aspirations, it's, in my mind, running the business, it's very achievable.

Definitely. Shifting gears here a little bit. How are you seeing demand for your whole loans now and going forward? And is there a consistent appetite for the loans? And has there been any changes in the composition of our whole loan investors?

We're still seeing a robust appetite for whole loans. Redwood Trust brought back the private label securitization market in 2010. And from that point forward, we have always included whole loan distribution as a key part of our strategy. And since that time, we have worked very hard to build direct relationships with a lot of key investors. It's still mostly banks and insurance companies, but that's one of our biggest drivers. And so we're at a point now with a lot of our investors where we're delivering loans on a very consistent basis. Some we're delivering to monthly. And the importance of having that whole loan outlet is that then you're not really stuck with just sole determining driven by the private label market. The private label market's good, but it's good to have some diversity in some that side liquidity. So we will continue to work on the whole loan market. We'll continue -- that will be a big part of our strategy. And one thing that Fred said earlier, I mean, a lot of times, we will get better execution in a whole loan execution than we will in a securitization. So it allows us to stay nimble. It allows us to take advantage of the different portions of the capital markets. And it will continue to be a big driver of how we distribute loans going forward.

That's great. Well, we've talked a lot about technology today, and we've heard about ways that Redwood's focused on technology throughout the business. Can we hear a little bit more in terms of the residential business, how you guys are using technology to acquire and retain customers?

Yes. So I've been at Redwood for 9 years, and I've never been more excited than I am today about where we sit in terms of technology. We are -- we recently rolled out a mobile app for our sellers, which is very exciting. We believe that the mobile experience is important for both our sellers and their loan officers. The mobile app provides them with transparency in their pipeline. It also provides them with key performance metrics. And it just -- it keeps them informed and engaged in the process.

I mean our ultimate client on the acquisition side is the loan officer. The loan officer at these originators is really the individual that decides where to put the loan. And everybody's on their phone, our loan officers are on their phones and our Redwood Trust is on their phones with a mobile app. It allows them to lock loans more easily, and it allows them to determine eligibility for certain programs. So we're really excited about this because we want to dominate the head space of the loan officer. So this is -- I don't think anybody else is doing this. We're excited about it. So it's a way to acquire new customers and retain the customers we have. And that development was -- we got a lot of feedback from our loan officers, from our loan sellers as well. We didn't just go in and throw this thing out there. I mean, it was a lot of development work with Carlene and Jon talking to customers, saying, what would matter, what would be important to you? So it's really exciting.

Everything that we do at Redwood is with our clients. Not to them or for them, it's with them. We engage with them. We partner with them. We really want to build what they want to see. And so we take that in all phases of our operation.

Well, that's great. A lot of really exciting stuff going on. Thank you both for coming up and sharing that with us. And now we're going to transition over and open things up for Q&A for the group once we rotate a few people up here. Thanks.

Thanks. I wanted to hear potentially expanding the market with stepping into those [indiscernible] loans. What is the reason that they're doing that? What is [indiscernible].

Yes. So originally, I would say that people were buying cash because the debt markets weren't really fully developed. And your investor is often just trying to close quickly on something. And so they may not have access to the right debt capital markets. A lot of times, though, it's because they've just owned it for a very long time, or they're an accidental landlord. They moved out of the house, they left it in. There's other reasons why they may have it unencumbered. But it's actually a very high percentage that is still unencumbered. And what's exciting for us is that we're seeing the middle segment of the market being fastest-growing part of the market where people are actually acquiring more homes or looking to have more assets. And so by putting some leverage on, they tend to take that cash and put it directly into assets again because they're actually building portfolios. And we're seeing the kind of the biggest acceleration in the market of people increasing the size of their portfolios or trying to have more assets, which is, I think, why it's driving them to put some leverage if they've had no leverage in the past.

And I guess, what does it take to kind of find those borrowers to be able to be their provider for them?

So we look at a lot of publicly available data. We match tax records to where people are living. And we can figure out through the different algorithms that we've built over time and just massive amounts of mortgage data, which are the investment properties. And you can tell also whether they're not -- they've had financing on those properties, what type of financing it is, we can get to duration. You can usually tell if it's a bridge loan or a perm loan based on duration and certain types of algorithms that we've built out. The hardest part, I think, for most people who are trying to mine this data because, first of all, it's a massive amount of data, but a lot of people do know how to mine massive amounts of data. The key is to figure out who actually the owners are because there's so many LLCs and so many different things. And we have, over time, built out algorithms in different type of matches that actually match to our proprietary database and enables us to pierce through some of the information that others are having a much more difficult time figuring out who the investors are.

They've been -- since Sandra Thompson was named Acting Director at FHFA, there seems to have been -- be some focus on the affordable or lower end of the market. She doubled the low-income housing tax credit capital allocation for Freddie and Fannie. Obviously, the recent work paper on equity in homeownership. Just curious, as these programs move forward, the high end of the market, do you see any possibility where the GSEs' market share and what we would consider jumbo, high-end luxury homes, could that open up more to the private segment -- a bigger piece of that to the private sector as the government wants for policy reasons to focus more of the GSEs on the affordable and lower end of the market?

Yes, it almost has to, [ Steve ]. When you look at the percentage caps that they proposed, they're really constraining the overall book of business based on that percentage of affordable lending that they pursue. And the ultimate constraint or the way to get into compliance would be ceding business on the sort of at the opposite end of the spectrum. And we think that will be conforming high balance. I think we're a little ahead in our analysis. This is still a live issue, and there's still going to be a debate in ultimate implementation. But we did observe what happened in the nonowner-occupied space when similar caps were put in place, and it caught the market by surprise, frankly. And I think a lot of the sellers that called in to us weren't prepared for the shift when the agencies just stopped buying their mortgages. This time around, we want to be offering solutions well in advance to our sellers, whether it's on the resi side or the BPL side with clients. And so I think it's a really interesting opportunity. And it's the type of thing we're meant to figure out and get out ahead of.

[ Beau's ] had a question.

Chris, you talked about acquisitions potentially. Can you talk about potential areas in residential? Is it within BPL? Could we see new verticals?

Yes. I mean I think there's some very obvious aspects. I might actually let Beth speak to some of the opportunities in BPL just given the expansion of our platform and the number of areas that we could be penetrating both product and geography that we're not today.

Look, we actively -- I don't think it's a secret that there's a lot of consolidation going on in the BPL space. And we are actively looking at and participating in those discussions. I think what's important to take away is that while we are very excited, as Chris said, to either expand geographic footprint, product footprint, maybe some fulfillment, certainly getting more people in one chunk can be very accretive. But we are also very disciplined about it because we know that we have the ability -- we do a buy versus build every time we look at something, and we know we have the ability to build. And so we are looking to buy accretively, but we're building at the same time exactly the types of things that we would also buy.

Yes. I'd also add on the residential side, we're very focused on vertical integration, and we're looking at due diligence. We're looking at different puzzle pieces of the ecosystem and opportunities to either acquire or joint venture with some of those firms. We're also -- the whole genesis of Horizons was looking at potentially disruptive technologies in the early stages. Those are also opportunities in both businesses that we plan to pursue over the next few years.

Could you just give us a little bit more color around why doubling the sizes of the portfolio makes sense given you hinted at potentially not having a REIT structure down the road, right? So it'll require a lot more growth capital. So why does it make sense to also double the investment portfolio if you're expecting a doubling in the mortgage banking portfolio?

That's a great question. I think part of it is how the investment portfolio looks and evolves over time. One of the hopeful big takeaways from today, if you think about how our investment portfolio was situated a few years ago versus today, obviously, we're a lot more diverse. We're touching much more areas within the housing market, reperforming loans, obviously, BPL with CoreVest, other areas. And I think a big takeaway from today is we're going to continue to evolve how that capital deployment works, particularly when you think about the $23 trillion of equity, of home equity in the market and the Point partnership. There's a lot more of that where when you combine that with the fact that as we think about evolving corporate structure, scale of a portfolio still definitely matters. That still has real value and enterprise value for us through that particular sleeve, along with others, to be managing more capital. Obviously, the tax efficiency of the REIT structure is one that has inured to our benefit for a quarter of a century and will continue to do so in some form. But I think a lot of where we're going is that, that can be a sleeve of capital adjacent to others. That's kind of the big theme behind Horizons and how we're thinking about capital deployment. There are other ways to oversee our partners' capital when you think about what we're doing.

There's also a regulatory reason, which is the vast majority of portfolio capital that we've deployed this year has been associated with risk retention on issuances that our mortgage banking operators have created. So our capital securitizations or going forward, some of our residential deals, those require us to retain capital. So we want to do that efficiently, but it's essentially a requirement of the business. And as the business grows and as mortgage banking volumes grow, the amount of capital that we'll have to retain through junior investments will grow as well.

Can you talk about how you manage risk in the appraisal process across the business and stay clearheaded and rational with respect to how much HPA there's been this last year?

We have a process that's pretty rigorous, and we basically have a review process on every appraisal, and we have to make sure that we agree with the appraisal before we purchase any loans.

And I would add that, for business purpose loans, we also have a pretty rigorous process. But these are business purpose loans. And even though we do everything for our warehouse providers and for the market based on appraisals, we also do a cap rate analysis on all of our assets, so that we have a benchmark and we can make sure we understand what the debt yield is going to be and what the coverage is for that loan. And so I think that, that gives us a lot of fodder in our investment communities to really go through what we think of the appraisals when we can benchmark it against a current cap rate analysis.

Our average LTV in the jumbo mortgages we're buying is below 70 to high 60s as well.

We're going to take 2 more, [ Ryan ] and then [ Steven ].

So what were some of the success characteristics in Horizons that led you to quadruple the investment size? And then as you think about that going forward, what areas are you going to deploy that capital into and how will it lead the synergies within the overall company?

Well, I'll talk about the pull-through and maybe you could talk about a few of the areas. But really, the amount of inquiry in interest, and once we started establishing that network, the amount of deal flow that we've experienced just has been off the charts. So we originally allocated $25 million. It was a small number. It really wasn't going to move the needle from a forecasting perspective. But as Horizons has grown, it's sort of donned its own persona and attracted an entirely new cohort of interested investors. We're looking at, in some cases, dozens of deals a week. And over time, as we build our infrastructure, we'll be in a position to pull through more. So we feel really good about the 100. And again, the goal is these businesses, these start-ups that need Class A, B, C capital have an access to our business. So they're not just profitable in their own right, they're doing something that potentially could be transformative to Beth's business and Fred's business.

Yes. Ryan McBride will go through this in much more detail. But some of what hopefully shines through in today, particularly with Fred and Beth's presentations, is there remains a ton of green space in our markets to continue to evolve how these ecosystems work. And as proud as we are of all the technology progress we've made over the past few years, there remain redundancies in the market. [ Eric ], you mentioned appraisals. Obviously, there's the quality control part of that and then there's a simple process of efficiently getting high-quality appraisals. And what that means is you're scaling your business. Due diligence is another big one. The market has capacity constraints right now, which we have been working through, through a combination of both technology and relationships, and there's a lot more to do on the technology side to evolve those. And a big backbone of the growth plan, frankly, is that. There's a ton of green space to continue to evolve those things. Construction management, which is a big part, as Chris Hoeffel referenced, of the CoreVest business with the transitional lending. As we get faster and better at those things, we can serve our clients more quickly and also manage our risk incrementally more effectively as well.

And also by our adoption of the technologies, we can affect the outcome and increase the enterprise value of the companies with whom we've made the investment with Horizons. So our capital's very strategic. So we can really influence the success of that start-up if we adopt the technology. So I think there's a lot of cool opportunities like that.

Yes, and the companies view our capital as strategic.

Absolutely.

Right. And so they'll hold around to make sure that we come in because they want access -- they understand that us coming in, it helps open it to the client base.

Great. I guess you guys both sell to and compete with banks. They've got more flexibility now with dividend decisions and stock repurchases, so their capital decisions are changing. How does that impact you as you both sell to them and compete with them in the bigger mortgage industry?

Yes. I mean we continue to be frenemies with the banks. We compete with them, but they also are some of our best clients. In the near term, [ Steven ], I don't think it's made a big impact on how we've done business with the banks. And in fact, there's some really interesting strategic discussions going on with a few that aren't ready for prime time, but hopefully, they will be by the end of the year. Overall, I just think our infrastructure is too valuable to them as they change their approach to nonagency and they get very interested and then they get uninterested, working with somebody like us to sort of be the spillover is something that I think many of them value. So we're always working with the big banks, JPMorgan, Wells Fargo, Bank of America. And I think just given our deep relationships with those firms, there's nothing from a regulatory standpoint or a dividend standpoint that we expect to change that.

All right. With that, we're going to take a 5-minute break. We'll be staying in this room. There's food and beverage over here. There's also a nitro cold brew coffee and kombucha in the back. And we'll reconvene in about 5 or so minutes. [Break]

All right. We're back, and we're going to get started with the second half of our afternoon with The Future of Housing Finance panel with Bernadette Kogler of RiskSpan; Armando Falcon, one of our directors and CEO of Falcon Capital Advisors; Michael Bright, the CEO of Structured Finance Association; and Chris Abate.

Well, hello, everyone, again. And we have a very good panel for you today, a very timely panel. I will be the moderator. We have 4 CEOs and the least impressive one had to moderate, so that would be me. But let's jump right in, and maybe, Michael, we'll start with you. There is a lot going on in Washington, not just high level, but this week. A lot of talk around a string of nominations.

Yes.

A potential new name as the head of the FHFA. So my first question is, what do you know, what can you tell us?

Right. Yes. So we're going to make predictions here. That's great. And also the professional talkers panel that's going to get us back on track on time, so we'll do our best. And thank you for having us. Thank you for inviting me to put on a wool suit and tie post COVID. It's exciting be back. Good to be here. Okay. So we can make predictions, but I guess it probably would be better to start with what we know, so take stock of what we know. One of the things that I think is an interesting development that it's kind of a seismic shift, although you might not necessarily see it, but I do think it's pretty meaningful, is that FHFA is now fully a political entity. Post crisis, the idea was create a stronger regulator, and I think there was a lot of concept about having -- have it be a little bit more like a Fed, a little bit more like market technician, even people from New York coming down and potentially running the agency, people with experience in MBS and stuff. And DeMarco was sort of this test case. I mean, he was a D.C. guy, but he was a technocrat within D.C. He's not exactly a raging political operative. He came up through the Treasury department and stuff. And so it almost felt like the agency could kind of have gone in a number of different directions in terms of the future of it. They push DeMarco out, and they put in Mel Watt, who's a member of Congress and he was definitely a political animal. And I don't mean that pejoratively. I just mean, I think, objectively he was. And that everyone was kind of like, is that real? Is that forever? Is that really the shift here? Or is that an aberration? And then it was Calabria, who's also never worked outside of Washington, D.C. in his life. You have a libertarian here who's always been paid by the federal government, which was -- that was a little strange. But clearly, a D.C. guy. And now the latest rumor is that it could potentially be someone like Mike Calhoun, who's also a D.C. insider. Someone like Mark Zandi had kind of been -- his name has always kind of perpetually floated in all 3 of these moments, and the gravitational pull seems to be someone who's super political. And so I think just coming to grips with the term that like -- coming to term with the fact that the FHFA is not turning into like a new Fed for the housing market, is a political entity. There's plenty -- it presents plenty of challenges, but also opportunities for a firm like Redwood. It's just something that I think you should put in your operating sort of baseline set of assumptions you can operate around that. The other thing that is now a truism is that as far as I can remember, especially going back to the beginning of the Great Recession, it was make rates lower, that's how you make things more affordable. [ It was totally hammer ]. Buy MBS, cut GPs, cut MIPs at the FHA, that was the mechanism to increase affordability. Finally, I think with this infrastructure deal, you're starting to see that supply is now creeping in as something that people are thinking about as an important facet of affordability. And I think that's about 8 years overdue. But D.C. has been like hyper focused on the level of GPs, the level of MIPs, the Fed buying, the level of interest rate and that being the only metric of affordability. I think we all kind of looked up and was like, oh c***, asset price affordability has completely outpaced wages. And so you're starting to see some focus on supply. I think that's a good thing. And then finally, the last point would be, I'm not predicting the end of homeownership as being grandma and apple pie in the U.S., it's definitely going to be there. But I do think that there's a moment of recognition that it's wealth accumulation in underserved communities. That's something that's important. And so I think when you look at something like single-family rental, if you can position accurately, in my view, this is an opportunity to help people get their kids into schools that they maybe otherwise wouldn't be able to afford. That is a form of wealth and a form of wealth creation especially for underserved minority low-income communities who've kind of been left out. I would lean in pretty heavily on that because I think you can start to see the beginnings of a recognition that it's not just owning a house. That it's a lot of different access to wealth-building opportunities, including education in the neighborhoods that you live in. And so I think that there's an opportunity for you guys on that one in years to come.

Chris, I'll add to that because -- it's great words of wisdom from Michael. But -- and I'll add, like he said, when I was regulating Fannie and Freddie as head of OFHEO, I considered myself fully an independent safety and soundness regulator. If I was running that agency today, I would view myself as a policy instrument of the White House because of that Supreme Court decision, I think, that changed everything. And so what the agency does going forward in how to exercise its mission is going to really be impacted just with that one pivot. And certainly, I think what's interesting now is you see, of course, affordability is the leading issue of the day in the housing market. We don't see that, maybe led mainly by -- because of lack of inventory. But -- so it makes a lot of sense for the White House to nominate somebody who lives and breathes housing advocacy. The guy who we've all read about in the newspaper is Michael Calhoun. So it makes sense for the White House to nominate someone like that. But as someone who's gone through the process of being nominated and then confirmed and all the way to getting sworn in, that path is fraught with trapdoors and pot holes. And if you can get through the whole process and actually get sworn in, you've really accomplished something. So I read a headline today just a few hours ago that said, "Is Mike Calhoun still in the running to be head of FHFA?" If he is, in fact, was to be nominated, everyone expected that it would have been yesterday when the whole slate of nominees came out of the White House. The Head of Ginnie Mae was nominated and Assistant Secretary was nominated to -- for an office within HUD. So it was the perfect time to include the Head of the FHFA. The fact his nomination wasn't included in that slate yesterday may be a telling sign that perhaps he is in some trouble, his nomination. I have no idea, but reading the tea leaves of how this process works, it's interesting to see whether or not he actually makes this through the next step of actually getting the nomination.

I was a bit surprised, as I think a lot of people were, that Sandra Thompson wasn't either nominated or that they had focused so heavily on an alternative. Why do you guys think that is?

Oh, boy. She may be a victim of her own strength, which is independent thought, deep understanding of the technicals and the ability to -- she came up through FDIC. Ed DeMarco actually hired her over to FHFA. I think she's a strong intelligent person. I'm not saying that -- trying to be -- I know the guys in the NEC, they're good folks. They're not -- this isn't a sinister thing. But if you couple what Armando said with the observations that we've had about the shift in the FHFA and the fact that it is now a political arm of policy tools, I could see a case where folks in the White House want someone that is more in their club. And so that's one of the things that could be at play here. I do think that the Calhoun thing is a -- they're [ floating to travel him ]. It's what they do. Usually you don't [ float to travel ] unless you're really, really close. But yet, there is a little bit of road to go through government ethics approval. It's a long path. If anyone wants to talk about what it's like to get nominated and not get [ upset for ] -- I'm happy to talk about that over drinks in a little bit.

I wasn't going to say he wasn't helping, but...

I could've used some help from Armando. But in any event, I mean, maybe that's it. I'm surprised [indiscernible]. I mean I thought she was going to be there for the long haul. She still may be, but yes, I thought it was a little surprising.

Yes, it's such an [indiscernible].

No, go ahead. Go ahead.

No, no, after you.

No, I was going to say, I mean, what we are seeing under Sandra is this sea change, particularly at the GSEs, for the social aspect of things. And it's just interesting, and you know this better than any. You just said safety and soundness is the fundamental priority, right, of FHFA or is it to promote social good. They are conflicting goals, and so balancing that is extremely difficult. So from what I've read, Calhoun is sort of a supporter of perhaps taking the entities private again and creating some utility of them, which has been on the table since the crisis. So I don't -- I wonder if there's something in that, that's weighing one way or the other.

Right.

I think -- yes, I think it's a really good point. I think CRL's make them private was the idea that was that there were a lot of different reform plans that were being batted around. So the fact that they wrote a white paper on reform, I mean, there's 70 of those. Like if you want to fall sleep, we got plenty of material to give you on that topic. But I think the premise there was -- the intellectual premise that they were sort of building on was if you get them out of conservatorship and you reestablish some of these going concerns with a little bit new regulation, then you have solidified them as being part of the ecosystem forever. And if you think back to 2013, 2012, 2014 even, there's a lot of talk about getting rid of them, carrying up the charter is doing something really different. So I would be willing to give them a little bit of -- maybe a little bit of a pass in that maybe the idea of privatizing them was that it actually solidifies them. But I think there are a couple of mistakes, one of which relates to Armando's comment because [ the 3 ] that we're looking at trying to speculate as to why Calhoun didn't get nominated was because the CRL took somebody [ from some head fund ] who owned legacy shares, and that may be one of the reasons that progressives are -- have difficulty there. And then I think when you really get up to the table and you say we're going to spin these things out and make them private, what are you going to tell the $7 trillion in MBS shareholders who have been told nothing since 2008 and then the government -- these are government sovereign debt, AAA sovereign debt. Mark almost tried to do this -- tell the equity investors and the MBS investors different things. And I think, thankfully, Mnuchin put the stop on that. So that could be a boundary condition on kind of spinning them out. But it continues to emerge as a prospect, and it's kind of weird.

Yes, this -- you've other topics. I'm sure, if I...

No, we could go on.

Yes, but it -- yes, we could go on forever with this. You can certainly guarantee securities without guaranteeing the entities, right? I mean that's been on the table for sure. So anyway...

Well, I think one related topic is just level-setting on what you all think the Biden administration's priorities are. It appears as though they're heavily focused on affordable -- on affordability and affordable crisis. What perspective do you guys take on that as far as what possible solutions there are? And particularly, is there a role for the private sector as some of the regulatory changes take hold? And Bernadette, I know you're doing a lot with ESG and work with your firm, so your perspective would be good and then we can take Michael and Armando.

Yes. Thanks. The Biden, there has just been a complete sea change, right, across the country with not just in housing and mortgage finance, but across every industry with ESG. I know a lot of public companies are certainly scrambling right now to get their ESG ratings up. But in terms of housing, as I was saying, I mean, Biden issued his executive order on climate risk back in, I think it was May, which sent FSOC and then every other regulator sort of looking to set this as a priority. So that certainly is not going to change. In that executive order, he mentions Ginnie Mae, FHA, VA, all of the lenders as this should be a priority. We now are seeing chief climate risk officers across the agencies that are coming up. It reminds me of sort of when the CRO and then CDO sort of evolved. But -- so this is a #1 priority. And so how does it affect housing? There is a rising very complicated policy issue that is now being discussed across D.C. and elsewhere, where the fact is that a lot of our lower income and moderate housing is in areas with higher exposure to climate risk. So that could be flooding, not just in the coast, but across the country. So what do we do? It's actually a very complex dilemma. We have to deal with the situation. Our view is we have to start with sort of borrower education, et cetera. So part of the thinking is when we're talking about affordable housing, I think 2 things that are often overlooked. Number one is climate that we're talking about now. The technology is there to do the evaluation. And number two is sort of aging of our housing stock overall. So the more affordable homes often are homes that are older homes. People, borrowers are not always prepared for what may happen in terms of just simple maintenance and things or what needs to be repaired. So these 2 issues, I think, are first and foremost. I think Biden is definitely focused on that. The infrastructure bill, I think, has some things in there to sort of prevent that and get in front of that. But it's -- I think some of this is going to be a 5-year, 10-year developing and evolving problems to solve.

And when you say the technology exists, do you mean to measure the problem and drive towards sustainable outcomes?

Yes, absolutely. So some of the way that the work that we do at RiskSpan, everything is at the loan level. And I do think some of the future is no more of this sort of rep line or cohorting, it's actually property address, evaluate not just are they exposed in a geographic area to climate risk, but what's the structure of the property. Is it resilient to impacts of changing climate, other things. We're using imaging technology to evaluate the roofs of some of the homes that kind of gives you an indication of has this house been maintained or not. So all of these things exist. Property insurance industry, I think we can learn a lot from what they've been doing for decades or at least the last recent decade. But these are some things that do exist, and we can certainly tag it to a specific property.

Chris, I would also add that I think you're going to see as for its policy and this housing policy out of the administration is we've pivoted from a free market libertarian point of view, running the FHFA to an agency that's now part -- that's a tool -- I don't mean that in a pejorative way, but the White House will use every mechanism that it has available to it to try to address an important issue of affordability. And the FHFA is another one of those tools. And so you're going to see policy coming out of the administration out of FHFA, which will try to address this issue about affordability. That's a separate issue from another question of what happens to Fannie and Freddie? Are we going to see a conservatorship period that just continues for another 4, 8, 12 years? That's a different issue, I think, from the whole focus on dealing with the affordability issue right now. It may be that what happens to Fannie and Freddie gets punted for another decade. We'll wait and see. But I can talk more about what we've read about the proposed nominee. It seems to run FHFA. But the focus there should definitely be about, all right, how do you prevent another accounting scandal at the enterprises? How do you prevent another situation where they invested heavily in high-risk mortgages and go insolvent and need to bail out? How do you prevent the whole kind of market arrogance and issues, cultural issues, that drove them towards all of that? That's not been addressed yet in anyone's plan about how you deal with what happens to Fannie and Freddie. There are ways to fix that, and I haven't seen it addressed in some of the papers put out recently, but that's a big issue you made.

Yes. I think that -- I think there is a space that we're setting ourselves up to operate in a little. And I think that Redwood has a role to play. And we've talked about this lot, Chris, at the SFA Board meeting level. So you've got QM, you've got ATR. And the QM, it's kind of funny how these terms have gotten so conflated and distant from sort of, I think, the original intent or the original debates that took place in Dodd-Frank. So if you read Dodd-Frank and if you watch and remember what the debates were taking -- what the debates were like at the time, ability to repay was this thing that was going to apply to everybody because lenders are making collateral-based underwriting decisions. They weren't evaluating whether the borrower could repay. They were evaluating whether -- if the borrower can't repay, can I flip this house and make enough money on it after all the costs of foreclosure, et cetera. And Dodd-Frank was -- put that ATR rule in because it makes a lot of intuitive sense and just say, you're not allowed to do that. You have to make a good faith, those are the words, good faith determination that you evaluated the borrower for his or her ability to repay. That was supposed to be all that within the rule. Industry then said, well, can we get a legal safe harbor from liability for at least some of these loans that are so obviously within ETR that we shouldn't have to spend any money on raising defense foreclosure claims or fighting defense foreclosure claims so we have the safe harbor from liability. And then there was this big -- industry wants this big safe harbor and progressives at the time the crafters of Dodd-Frank were sort of thinking this is a give to the market to say, "You're going to have this legal safe harbor from liability." The 2 then, over time, became completely conflated, and now it's like QM/ATR is the same thing, where almost like non-QM lending comes across as like risky or outside of potentially of ATR rules and you have to be brave enough to get into that space. There was always the intent to have a big gap between those 2, a pretty sizable gap. I mean ATR was going to apply to everyone. Every loan had to meet this. This is just safe, sound logical underwriting. And then again, QM was supposed to be loans that are so obviously ATR-compliant, they get this legal safe harbor. They're not supposed to be sort of the same thing, and we've been living with this patch regime for the better part of a decade -- or more than a decade, I guess, as supposed to be this bridging mechanism was something new, when they never got to this anything new. So what I think can happen and should happen and we know that this bureau in this FHFA, meaning Senator Thompson's FHFA, and a lot of this administration, is supportive of the idea of industry coming together to say, let's set up some standards that we can say, look, if this doesn't meet the total safe harbor super safe, but we have some data and we have some processes and controls and governance in place. Maybe that's even the G of the ESG lending in this space. We have governance controls in place to say, we've evaluated these borrowers for having the ability to repay. We can show that underwriting that takes into account rent payments as opposed to just credit score, as opposed to just mortgage payments, underwriting that looks at bank statements with certain expense ratios that are logical and tethered to reality in the industries from which these bank statements come. That type of nontraditional underwriting can produce loans that perform very similar to loans that are multiyear W-2, big down payment, standard type of borrowing. And if you can show that with data in the investor and the issuer all agree that these things make sense, puts a stamp on it, then you have a pretty solid legal case to say, this is an ETR-compliant loan. If a borrower raises a defense to foreclosure, you should have a chance to be able to win it. But more importantly and more interestingly, if you talk to some of the largest asset managers, they have appetite to buy this credit risk. But their compliance department say, "You need to prove to me that this is a legal loan." So if the industry comes together under leadership with -- from firms like Redwood and organizations like SFA, which we're doing, and says, we're going to set up some minimum standards for determining what good faith ATR compliance is, even if it's not QM. We'll stamp this with some sort of a piece of paper that says we think this works. I think that's a pretty big space that you can play in, and it just takes a little bit of extra elbow grease. But those are communities that are not really being adequately served right now. And I think the money is there, the capital is there, the desire is there. This administration wants it. It's arguably a progressive cause. It's arguably a conservative cause because you're having the private market do it instead of Fannie and Freddie. So it's one of the things that's sitting there as a win for everyone. We just kind of got to build it. And so that's a big priority for us, and we're definitely going to be doing it over the coming years. But I think that, that can solve some of these problems.

Great. And similarly, with sustainable lending in creating a framework for establishing standards there, I know you guys are focused on that and your business is focused on it. It takes a lot of different stakeholders though. You have rating agencies, you have lenders, you have investors. How do you bring all these groups together to come up with standard setting outside of the government getting involved?

I think we've seen a lot of players in the market become enforcers independently, some with, some without coordination among the others. But nowadays, sustainable -- the word sustainable is now coupled to the word housing or homeownership. Just like cars on the trains, they're just always spoken of together in the same breath, it seems, sustainable homeownership. And I think everyone recognizes what happened with the just collapse of underwriting standards in the last mortgage crisis. And now everyone, from investors, rating agencies, regulators, others in the market, are now also sensitive from everyone getting burned by what happened with subprime mortgages that I think everyone is very sensitive and attuned to any deterioration in underwriting standards. If the government didn't do anything, and it did through legislation that was enacted, just certainly the self-preservation interest now of everyone who got burned in the private sector has created a whole lot of awareness about the need to police against deterioration and underwriting standards. So if -- we all know the mortgage market is cyclical, right? And subprime mortgages triggered the last down cycle in the mortgage market. Maybe you can debate that, maybe it's something else. But that's sort of what I perceive as the consensus was. What's going to be the next driver of the down cycle in the mortgage market? It doesn't seem like it's going to be subprime mortgages. Our challenge is to make sure that we can anticipate what any possible driver of the next down cycle might be and to try to police against it before it can happen. But I think with the high standards for underwriting, it looks like the housing market is really strong, except for this affordability issue.

Yes. There you go. So...

Yes.

I mean the reality is you cannot have an efficient liquid market without standardization in some form. So it doesn't work. It can't flourish. So the work that you're doing, Michael, I think, is foundational. So the GSEs -- people don't think about the GSEs, but I think one of the most important things they ever did was standardize the loan application. And then they rolled out their automated underwriting systems in the mid-90s. But before that, they had this process of manual delegated underwriting solutions. So in the private sector, we need standards and then sort of a taxonomy, if you will, or normalization of just terms. So that investors can look at Redwood, they can look at other issuers and they can sort of compare across issuers what the loan collateral is. Until they can do that, they're going to -- and this probably benefits Redwood, they're going to gravitate to companies like Redwood, where they know they can rely on consistent collateral in an organized way. And that consistency at the end of the day is what they're buying. But I would argue that's not necessarily an efficient and very liquid market.

There was -- so an anecdote that is maybe illustrative. Probably 2 years ago, not very long after I took this role, and I was kind of doing the road shows and meeting a bunch of folks come to see a bunch of asset managers in New York. And we sat down with a really large asset manager not far from here. And they said 2 things that are conflicting, but also kind of was part of the impetus for this idea of building this SSO. They said, "Hey, in the non-QM space, ones that don't necessarily meet QM guidelines, I know there's a lot of really good credit in there. We can run the credit model on that. We can analyze it. We -- it looks very compliant. We feel confident these ones are going to perform." But I go to my compliance department and they say, "I don't have certainty that this is a legal loan, so it doesn't matter what your model says. We're not able to necessarily give you the ability to buy that." And so they said, "Can you help us figure out what is and is not a legal loan?" And so we started thinking about this concept of the standard setting organization. But then they said, "Oh, and by the way, have you been tracking this fixed expense ratio, bank statement underwriting thing?" Because if you don't get the fixed expense ratio right based on the industry, that thing is about to blow up. That's like the new subprime. So in the one conversation, they were saying there's really good credit in non-QM loans that we want to buy, but we just need the [ implementary ] from someone that says we think these things are illegal. By the way, there are some things in there that we really think should be illegal. And so COVID happened and then some of these fixed expense ratio underwriting kind of dwindled and hasn't really been a huge topic in the last 1.5 years. But there is this desire on the part of, I think, really advanced and adult-like investors and issuers to find that middle. And so if you build an organization or you -- if the industry is willing to work together, whatever -- under whatever umbrella, whatever leadership structure, but the industry is willing to work together and say, "There are loans that aren't being made, but we should be able to make it. Also, there are loans that should not be made, and we don't want to be dragged down again into this race to the bottom." They happened in 2005, 2006. That's the type of governance that I think non-agency market really needs. And it's going to take a lot of us coming together to do it. But I'm telling you the desire is out there because every PLS investor in our membership wants that to exist in some form. We know people who want to issue PLS want that to exist in some form. And even the FHFA want that to exist in some form because they don't want to necessarily have to rely on the GSEs to fulfill all these missions. They want loans to be getting made but in a safe and sound manner that's compliant with ATR. So one way or another, I think that there's capital to deploy in that safe space, and it's just about giving everybody comfort. We can do it collectively. You can do it with data on your end and present it in such a way. But I think if you present to an investor, you're staying within those 2 sort of lanes, I think the money is there and the appetite is there to do it.

Yes. Well -- go ahead.

Michael touched on a point that I think maybe should be brought out a little bit more. I think in the whole housing policy world, there's a recognition that if you want to place an intense focus on affordability and solving those issues, any resource that the government spends outside the affordable housing arena is resources that are diverted away from affordable housing. And so it was mentioned earlier today by someone, "Why should Fannie and Freddie be focused on this jumbo conforming part of the market?" It's a very legitimate point. I don't know if you can say that enterprises operate in quite a zero-sum game about resources spent here or diverted from here. But to some extent, I think that's plausible to say. And so I'd like to believe that there's some point with the strong emphasis on affordable housing by the administration that it will cause maybe some shrinking of their footprint in areas where the attention is -- resources are being diverted away from affordable housing because they're operating in parts of the mortgage market that the private sector POS can certainly serve very efficiently.

Yes. And I think my final question, it was along those lines was before the great financial crisis, what really drove the private sector was Wall Street. And ever since it's been Washington, it's been regulatory changes, it's been policymaking. And obviously, the private-label securitization market in the private sector looks a lot different today than it did back then. With all of these changes in Washington, potential new regime at the FHFA, there's been talk about Ginnie breaking out from HUD at some point. There's been a lot of interesting conversations going on. What is your prognosis for the private sector, investor properties high balance -- jumbo loans, securitization? Are you more or less optimistic than you were, say, 2 years ago when we last had this panel?

I mean I'll answer first but...

You can answer for all of us.

I like very -- honestly, like I think it's a massive opportunity for the private sector regardless of the regulation in a sense because we didn't really -- we alluded to some of this -- some of the work that you guys are quite honestly doing. The private sector operates with very, very high operational cost. And just broadly speaking, in a securitization from start to asset servicing, there could be 15 different roles or enterprises that are touching the deal in one way or another just sort of sucking profits or draining profits out of the deal. So why does that exist? Like a lot of those firms are there simply to validate a piece of data, verify signature, a piece of document, re-underwrite, re-underwrite, validate the cash flow model, et cetera, et cetera. They're not really adding value to those functions, right? They're just sort of there because nobody trusts the data. So if we can get to a point, which is sort of the promise of blockchain and you can do this with other technology where you fundamentally can trust the data, then you can eliminate. And I do think some of that is starting to happen. Obviously, you guys are doing it. Others are doing it. So that we're probably going to see in the future some disruption in the market, some of those functions and perhaps businesses go away, rightfully so. So it presents a tremendous opportunity for securitization, but also whole loan markets. So the investors don't like the operational headaches of whole loans. Technology is there and can service that and solve for that solution today as well. And I do think in the next 5 years, we're going to see that as well.

So first, what she said. So much respect for Bernadette, I just want to see what she said. But the other thing is the private sector can innovate faster than the government certainly can. And there's going to be so much innovation that happens in the mortgage market. We talked about blockchain and what Redwood's doing, talk about digital mortgages and what's going on there and the private sector driving that. The government is trying to catch up with e-notes. So I think that presents so much more opportunities for private capital in the mortgage market that we just haven't even scratched the surface yet.

So I agree, but let me give caveats, if that's okay, just so that we don't get completely untethered here. So I quickly thought of 3 counterpoints that don't negate these points, that's just to keep in mind. Number one, you mentioned the transition from Wall Street to Washington as being sort of the power center of the housing market. I have not seen Washington willingly give up power very easily in my 12 years in D.C. So the idea of them relinquishing it back, there's going to be some structural resistance to that. Overcome a [ wall ], but we want to be realistic about it. Number two, and this is still sort of bothering -- it bothers me. I know it kept you up at night a lot last year, but how AAA PLS got left out of TALF and why the Fed hasn't done a mea culpa on that is bizarre to me. And so one of the things that we're really -- we're doing some really good research right now. We have a research arm now at our organization. We're going to push pretty hard at this idea that you left some segments out because you were just dusting off the '08-'09 playbook, and that's not smart. And I understand that there was -- look, TALF was run by some very exceptional and capable people, but they were kind of like, we got to get this in operation fast, so we're going to use assets that we already have approved. So we're kind of saying to them now, you should get it up like you should have the break glass plan for these assets ready now so that in the future, you don't have to have that problem where you have to pick and choose or just stick to the old book because you're trying to do something quickly. I think how that dialogue evolves is going to be a little bit telling in terms of whether or not Washington really is willing to relinquish a little bit of power because of the Fed is willing to support stuff that wasn't originated in Washington, that will be meaningful. So we're hopeful that we can do something there, but watch that. And then the third thing is that the high-balance stuff at Fannie and Freddie, I definitely think the investor stuff, full steam ahead. I think [ collaborate ] got it right. I think it was probably the best decision that he made of one of the only major policy decisions that he did that I thought was really good. And I know that Sandra seems to agree with him, and I suspect that Mike Calhoun would too. So I think that's open season and open road for you all. With the high-bal stuff, that does play across subsidy function so that it can keep the g-fees a little bit lower for the low-bal loans. Even though the complexity -- there are some complexity differences, but they tend to get over loan by the credit piece. And I think there's going to be a desire on the part of Calhoun or whoever the next FHFA Director is to lower the sort of LLPA curve. And in order to do that, you need to keep some of that super-high FICO, slightly higher-balance stuff in there so that it can keep you safe and sound and cross-subsidize some of that other production. So it's just worth keeping an eye on that because that's just a mitigating factor. I agree. The simple answer to your question is, are we better -- is the private market in a better position now than it was 2 years ago? 100%, yes. Keep those 3 kind of caveats in mind though because there's going to be some challenges just to navigate along the way.

100%, yes, Michael Bright. Remember that. We got to wrap it up. Thank you guys so much, Bernadette, Armando, Michael, our CEO panel. Thank you.

Well, that was a really great panel. I hope that there's a lot of information there. And hopefully, a lot for you to talk about during our cocktail reception and dinner this evening. Our next presenter is going to be Ryan McBride, who is going to walk through our RWT Horizons strategies and -- which is our vendor arm focused on proptech, fintech and other type of housing-related technology start-ups in our field. And I believe Chris and Dash and Fred all touched on this very important opportunity that we see in the industry and not only an opportunity for our business, but how we can really be at the forefront in our industry and leveraging technology not only for ourselves, but also for the industry and for our borrowers and our partners. So Ryan, I'll turn it over to you.

Thanks for riffing up here while I got mic-ed up. It's important. It's great to be back up here, partially because it's about 10 degrees or 20 degrees warmer than it is over there. So you wish you were up here. Very excited to talk to you about Horizons today. As you can tell from the prior presentations, there's a lot of energy around technology, a lot of energy around Horizons and the efforts. So it's very exciting to be part of that effort and to lead that effort. And I think that the team that we have here today is incredibly dedicated to it. So I'm excited to be able to give you a little bit more information about what it is we're doing at Horizons and just the buy-in that we have across the organization. I'm going to cover a few things here just to give you a quick preview. First off, I'm going to give you more details about the Horizons after in itself. I'm going to talk a little bit about why we think we're going to be successful in Horizons, also how we work closely with the broader Redwood ecosystem, talk a little bit about the markets and then the specific verticals that we're targeting. And then also give you a glimpse into our pipeline and some of the investments that we've made. So I promise I'll try and make it go quickly. That sounded like a lot, but we'll get jamming here. So first off, Horizons, as you probably guessed, is a strategic venture vehicle focused on technology that really spans our organization. We have capitalized it with $25 million, and you're hearing it for the third time, it looks like we're going to grow that to about $100 million by the end of next year. We feel very good about this, as Chris mentioned earlier, because of the pace of our deployment and really just the volume of opportunities that we're seeing. The great thing about Horizons is we have an amazing market and operational expertise around the firm that really informs our investment decisions and helps us as we go out there and look for new transactions that could be additive. It's led by a team of senior folks around the organization, very strong technologists, operational folks and transaction people that enable us to be very efficient when we're looking at transactions and then acting on our investment decisions. In terms of what we're focused on, no secret here. We're focused on technologies that have some sort of a nexus to our operating businesses. If you want to use broad labels, that's proptech, fintech, digital infrastructure, earlier-stage opportunities where we feel like we have the best opportunity to influence outcomes and be helpful to our portfolio companies. We are flexible in our investment size. We want to generally put $2 million to $3 million in every name that we participate in. And that could be for the initial investment and then for follow-on investments after that. In terms of why we're doing this, obviously, we think that we have an informed decision and we can generate meaningful returns over the long term. But it's also really the strategic benefit. It's really being able to mix it up with exciting entrepreneurs and technologies, really to be able to bring that technology focus back into the organization to really give us an opportunity to inform our investment decisions from a technology standpoint across the award and then also making sure that we're seeing what's beyond the next hill or 2 so that we can react accordingly. Nobody wants to get Blockbuster-ed. Everybody wants to see the next new thing. We think we're in an excellent position to make that happen here. Why do we think we're going to be successful? Three main factors here. I think the biggest one is the operating expertise. We really have a number of subject matter experts across the organization, and we really use that to inform our investment decisions. It's great to have team members who are great technologists or understand the loan infrastructure market or real estate and help us evaluate whether a solution is meaningful and has a chance to be transformative or if it's an also ran. We also have the ability to help out our portfolio companies by bringing them onto our platform, potentially doing demos, being an end user of those technologies. This really responds well with the entrepreneurs that we're talking to because they're looking at it as a true value-added strategic investor that can really help propel their business going forward. A lot of the investors and the entrepreneurs that we're working with like dealing with us as a strategic investor because we don't act necessarily like other strategics. A lot of other companies in our position might have the cadence of the DMV. It might take a while to go through multiple different committees and get things done. That's not how we're structured. We know we have to be disciplined, but we also know we have to move fast. And so we've been a very good counterparty, as you can see by the number of deals we've done in the short amount of time that we've been operating. And then I think, finally, we're -- our flexible capital. Certainly, we are adept at working on the typical venture around, whether it's preferred stock or convertible debt. But we also have the ability to go earlier on. Liquid mortgage is a great example where we help incubate a great idea, a great entrepreneur, get it to the stage where we could capitalize it like a proper company once we hit a few milestones, and we have an amazing amount of runway with that situation. We can also flex on the balance sheet, too. So a number of the companies that we're working with may be interested in additional balance sheet capital, maybe a situation like point where we can be an investor in equity options. It could be a situation where we involve CoreVest with a line of credit. So we really do have that capacity to bring to bear as well, which also resonates with the marketplace. There's been a lot of discussion about technology here today, which is great, and I think it really permeates the organization. One of the points I made earlier really is true in terms of how we interact with the company, and that is really understanding what the wish lists are, what the needs are from the organization in terms of technology and then we can use that to help ourselves screen new opportunities and look for new companies that could be additive with their products or services, whatever it might be. And then at the same time, we can then have that feedback mechanism. So if we're seeing new technologies, we can bring them back to our operating partners, and they can ingest that and hopefully apply that to their operating businesses. The other thing that I think really important is, we have an enterprise that is very willing to try new technologies. Whether it's Redwood Residential, it's CoreVest, it's the corporate ESG measures that we have, it's very easy for us to get people excited about what we're doing. Fred talked a little bit more about liquid mortgage and using blockchain in our next Sequoia deal. So that's obviously something that's very interesting and exciting to everybody. On the BPL side, we have an investment in a construction technology company that uses machine learning and AI to help us potentially get through construction draws much more quickly and efficiently and really automate that, which could be a huge lift to our business. And then in corporate ESG, we're spending a lot of time on climate analytics. People like Bernadette and others are coming up with really interesting technologies that we think are getting more and more important by the day so that we can assess the impact of climate events, not just on portfolios or securities, but also at the individual loan level. So we're spending a lot of time there. Just a quick dip into the market. Overall, I don't think it's a surprise to anybody in this room. You guys write research for a living. We might have cribbed some of these numbers from 1 or 2 of you. But the proptech and the fintech markets are truly on fire. I mean we think proptech is a little bit behind fintech. But overall, both markets have an incredible amount of investment activity. Fintech's probably on pace to do $70 billion of investments -- venture investments this year, which is quite astounding given where it's been in the past. Proptech is probably going to do about $11 billion, which is around where fintech was in 2017. So we think there's a lot of opportunity there. One thing that's really important to note, particularly in proptech, is the importance of strategic investors. You see a number of strategic investors flexing, whether it's direct investments or being active LPs and really opening up their business platforms to enable start-ups to come in and use their customer base, their companies -- or sorry, their asset bases, whether it's multifamily or SFRs. And so that's really been helpful to propel specific groups to be more successful as a start-up because you have an immediate installed base. We think with our platform, there's a lot of similar messages there. And that's, again, one of the reasons that investors really like working with us and other companies. Digging in a little bit more here. We think we're in a really unique situation in the marketplace because there's a tremendous amount of disruption occurring across the lending and real estate sectors. For a long time, technology and the domain experts didn't really coincide. And what we're seeing here over the last several years is really both sides coming together, producing some really interesting innovative solutions. Some of these sectors, subsectors, are well under the way of being disrupted. I think if you look at the Zillows of the world, they're obviously in a couple of different verticals here, but they've changed the game meaningfully in property acquisitions and now dispositions. And so we're looking for opportunities like that. And one of the things that is the key takeaway from this slide is because of our domain expertise, because of the people we have in our platform, we can dig down into these verticals, and we can assess whether a company has a chance to be disruptive. We can test those technologies, and we can adopt them ahead of anybody else. So that gives us a true leg up going forward in terms of growing our businesses. Talking a little bit about our investment activity in our pipeline. As Chris mentioned, we are quite busy. We've done 10 deals to date. At any given point in time, we have 15 to 20 deals that we're actively looking and then a stable of other opportunities that we're just trying to get to, frankly. So it's a nice situation to be in, and we look to continue to build our teams so that we can effectively process the opportunity set in front of us. We are sourcing from our own networks, but increasingly more, we're seeing deals come in directly to us just based on our activity in the space. If you look to the right on some of the investment themes we're focused on, you can see how that aligns with the prior slide in terms of the verticals that are ripe for disruption. We're spending a lot of time in alternate ways to affect home financing in terms of equity sharing. There's a lot of equity to unlock, as you heard earlier from Dash in one of his slides. Data analytics is something that we kind of live and breathe around the organization. So we're always looking at companies where we can pick up some additive technologies there. And then finally, climate analytics. We're spending a lot of time there because we truly believe that there's going to be huge opportunity in that space. And it's incumbent on us with our ESG goals to really get smart there and start spending dollars to make sure that we're part of that evolution. I know I'm running a little short on time, but just a quick examples of what we've been investing in so far. Some pretty interesting companies. We've heard about a few liquid mortgage, obviously, on the blockchain side; our 2 rent companies, Rent Room, Rent Butter, technologies that are really interesting and innovative in the BPL space that are incredibly additive to our customer base, which didn't cruise to us in a lot of ways. A point we've talked about is a company that is pretty interesting, and we're seeing a lot of other groups. What's similar yet, I would say, somewhat different business models that could be additive. And then [ identifies ] a recent transaction, which is a tech-enabled services company, and it shows you the power of strategic investors. They are really in the multifamily space, expanding into SFR here eventually. But they've already contracted with 400,000 units nationwide to apply their solution. They have an opportunity for 2.5 billion based on some of the other strategic investors that are riding alongside us in that deal. So it's just a fraction of the opportunity set we have in front of us. We're really excited about the opportunity, as I think you can tell from all the presentations here, whether it's the residential side, BPL or the corporate overlay, technology's in our DNA and Horizons is really important, bringing that home and making it more tangible for the overall enterprise here. So with that, I'm going to transition it over for our ESG conversation. Thank you.

Hi, everybody. Hi again. So you've heard some themes running through our management presentations today around the importance of ESG and having business with purpose and acknowledging what our role is and can be as a company in the world today. And over the last several years, we have dedicated a lot of time and resources evolving our ESG strategy, looking at how that is aligned clearly with our own corporate strategy. And we've made a lot of progress in several areas. A couple of years ago, Sasha Macomber, our Chief Human Resources Officer, presented some of the great work that we've been doing on our human capital and social front. So she's going to come up here in just a few minutes and walk through some further updates on the important work that we've been doing there. But I just wanted to share with you at a high level how we're thinking about ESG at Redwood and the frameworks that we've put together and the principles that we've been focusing on within some key areas of our business. And one of the things that you'll see from us moving forward is more and more disclosure. We've made some great progress in that, in my opinion. And we'll be continuing to do that not only this year, but moving forward on a regular cadence. So from a framework standpoint, we really took a step back in looking at who we are and tying our strategy to our mission and our values. How we operate and how we do business is as important as what we do. Looking at 6 key principles that I'll walk quickly through and then, again, focusing on what we do and aligning to some strategies, goals. And we've got a nice set of commitments and priorities that we have set going forward. So Chris really emphasized earlier the importance of our mission and how we live by that. And so everything that we do, including our ESG strategy, comes back to what we do, what is our mission and that is to make housing affordable or accessible for American households, whether rented or owned. And tied very closely with our mission, of course, is our core values. It's not only who we are as a company. It sets us expectations on how we behave and how we treat our customers and how we do business. And those 6 core values are around growth, passion, integrity, change, relationships and results. Corporate governance has been a foundation of ours, and we've had best in-class corporate governance practices since the beginning of founding this company. We've expanded that and evolved that with ESG as well. So we do have clear Board oversight over our ESG strategy as well as the accountability that the management team has for executing on certain parts of that. And we also have a formal ESG committee that makes -- is made up of a collaboration of our business unit leaders throughout the organization who are also accountable for executing on these strategies. Our 6 key focus areas are around our investment approach, our corporate governance, risk management, sustainability and environmental, human capital and our social and community impact. So when we started looking at this, we took -- our first phase was really looking at what it is that we do today and what is the type of financing and funding that we already do that's embedded as part of our business and ongoing business. And there are some examples that we've given here today within our residential portfolio, specifically in the Choice program and what opportunities that brings for borrowers who may not otherwise qualify for lending. Within CoreVest, there's several different types of financing that support some social types of initiatives, and one of those being workforce housing, which tends to target middle-income borrowers or middle-income households who would otherwise not be able to afford the median income -- or the median price for homes in certain regions. And last but not least, within our own Redwood investment portfolio, we have multifamily housing assets that support targeted affordable housing as well as senior housing. We're very proud of our -- the diversity of our Board and director independents. And our Board is aligned with our shareholders in their shareholder interest through equity-based compensation as well as mandatory stock ownership. And some of the metrics that we're proud of are the 82% of our directors are independent, and 5 of 9 of our independent directors bring diverse characteristics to our Board. And risk management is very important, especially given what it is that we do today. And we're constantly evolving our approach to deliver risk attracted -- sorry, excuse me, to deliver attractive risk-adjusted returns. And there's 4 key things that we focus on there, which are our controlled production quality, having a centralized decision-making process, having rigorous liquidity management and an enhanced capital structure. And last but not least, we think about our sustainability and environmental strategies, really, from 3 angles. One is around how do we reduce risk to our business as a result of climate change and climate events. We think about what is our impact as a company on the environment and what can we be doing to make a change and make a difference? And third is what is our influence? What is our ability to influence change in this area in the business that we do today? And with that, I'm going to turn it over to Sasha.

On Investor Day presenting on our programs, and at the time, we were very proud of the work that we were doing to drive returns for all of our stakeholders through our human capital programs and the investment in our culture. Well, fast forward 2 years, little did we know what was ahead of us in the world and I think with our business, too. As you heard today, we have transformed our business over the last 2 years with the addition of BPL. We've welcomed many wonderful new partners to the team. And I think importantly, we've all lived through a global health crisis that none of us would have anticipated. And so in short, I think my ears were tuned to this today, but I heard people and culture and how important those both are as drivers for results for all of our stakeholders, from our employees, our customers and clients and our shareholders as well. The good news is, although we've had to pivot over the last 18 months more than once, I will add, which I think many on the team can have experienced as well, we came in with a really strong foundation of both our culture and our human capital practices. So everything we do in these areas are aimed to build long-term organizational capability through a sustainable workforce. And we've been investing heavily in our engagement programs, our learning and development programs. At the end of the day, we're aiming to attract, engage, develop and retain the best possible workforce. And I think in what you're hearing today, we've been making a lot of great progress on that front. One program that I do want to highlight is our diversity, equity, inclusion and belonging work that we've been chipping away at over the last several years. A couple of key highlights on this. Our goal is to create not just more diversity within Redwood over time, but also an inclusive and welcoming environment where all of our employees are connected, engaged and ultimately feel comfortable coming to work and bringing their true selves. We're anchoring this work in a couple of key areas. We have oversight from Chris Abate, our CEO, but also several members in this room who are part of our steering committee. We're linking our road map to our overall corporate strategy, and we're engaging employees at all levels in this work through training, through focus groups and really, importantly, through our newly-formed Employee Diversity Council. A big call-out to them. They've already added a lot of value and feedback to this work. And I would be remiss, I also want to do a shout-out to our women's group, Redwood Together. They're driving initiatives in the organization that are important to women. They advise on our policies. They lead networking and speaker series, and they also contribute to our community-giving initiatives that are focused on women. And that leads me to our community impact, which Chris opened with our responsibility not just to ourselves, our employees and our shareholders, but also more largely to the communities in which we do business. And I always love to talk about our community-giving programs at Redwood because it's such a rich and strong part of our heritage as an organization. And I love this photo. This is many members out volunteering for Habitat for Humanity, which is an organization that we've been very involved with. Another call-out to our Redwood Foundation, which is our employee-led giving. They raised funds and make charitable grants to qualified nonprofits. What's really cool about are giving within Redwood is many of our employees donate through payroll deductions to the Redwood Foundation. And any employee can request a grant to a qualified nonprofit. And to date, the foundation has made over 175 grants to nonprofits since its inception. All right. A lot of numbers on this page. I have a couple of key takeaways here. One is, these numbers reflect the work that we've been doing to increase the diversity within Redwood, whether it's our Board diversity but all the way through the organization. We've hired a lot of people this year, and we've been steadily hiring, and these numbers really reflect those efforts. Secondly, we're investing heavily in caring for our people through our programs and our benefits. And the results are clear, we have incredibly low turnover at hovering just below 8%. That's very low for industry standards. So the work we're doing is paying off in retaining our employees. We also have happy people. You can see our engagement scores are quite high. People enjoy coming to work at Redwood, and they believe that our work is aligned with our mission and values. Finally, I'm going to close us out here by bringing us back to our overarching ESG priorities and commitments. So a couple of things to mention. ESG is a priority for Redwood. We also know it's a priority for all of our shareholders. And we are committed both short term and on the intermediate term to these top 10 goals and commitments that span throughout all of our key principal areas. We will update transparently along the way. We want to make sure that people understand the progress that we're making against these goals and are connected to the work that we're doing. And with that, I'm going to close out and welcome Brooke Carillo, our CFO. She's going to cover our financial forecast.

When Collin stood up, I thought she was getting a standing ovation and I thought that was going to be very hard to follow. So well, I know we're behind on time, but the good part of bearing a 2022 financial forecast in the back of the day's deck is that you still get to go no matter how overtime we are. So I will proceed, but I will streamline some of my commentary given it's largely consistent with themes that you've heard throughout the day. But what I will do in our forward-look about the operating plan that Dash, Chris and the rest of our management team has laid out is try to focus on the bottom line impact to shareholders. I'm also going to briefly revisit our performance since the onset of the COVID volatility since the company's margin in a real position of strength, and we're extremely proud of the results that we've delivered to date. But because I am late in the day and our live audience members can't pause me, I will recap 3 things that if you don't hear anything else for the rest of these 15 to 20 minutes, you can take these things away. And they are: number one, our growth goals assume continued and steady operating and capital efficiency gains, really rooted in the trend lines that we've seen to date. And they will have outside impact on our ROEs that we deliver to shareholders. Secondly, we are at an inflection point in terms of our operating leverage. Our mortgage banking businesses are operating today at volumes that this company hasn't seen historically. And it also will -- is driving a lot of the numbers that you'll hear today. And then lastly, if we execute on our plan, we are projecting mid-teens returns next year, which is continuing the momentum that we've seen on a fantastic 2021 to date. And we continue to view there to be a lot of upside to those forecast numbers considering that, that is a kind of base case operating plan. And many of the strategic tenets of our strategic plan going forward are either in their nascency or are just upside to the plan that we see today. And with that, I will actually begin my presentation. So some financial metrics are on the screen that underscore our performance to date. We have consistently generated over the last 5 quarters annualized economic quarterly returns in excess of 20%, which is really commendable. I think the management team actually began the year in our fourth quarter earnings commentary saying that we're committed to making 2021 the best year yet. And while a lot of the year remains ahead and we can -- looking at 15 to 20 years of data, I can say we're on track to deliver that. There's obviously many components of that return. Historically, the dividend has been a very meaningful component of our dividend -- of our total economic return. Our dividend is up 70% over the last 5 quarters. You might have seen or heard Dash mention earlier that we did announce yesterday another dividend increase of 17% to $0.21 a share, which now brings our run rate going forward to $0.84 a share. So a really tremendous rebound in our overall dividend. But also philosophically, we think about the dividend in a number of ways, but one of them is being supported by our investment portfolio. The investment portfolio provides a very durable and consistent earnings stream that you see generates earnings that are -- still provide a lot of cushion relative to that dividend level. And as we grow our operating businesses and create more assets for our investment portfolio, we expect that earnings stream to grow over time. The second component of our total return, and this is really the differentiated part of our story today, is our book value growth. Book value is up over 40% over that same time period in the last 4 or 5 quarters. And it's been driven by a few things that are also tailwinds that we see going forward, so they're worth mentioning. The first is that our investment portfolio has demonstrated incredible performance. And that's because of our careful credit selection, and also it's been a very fantastic environment for non-Agency risk assets. We've seen about $100 million of investment fair value changes year-to-date, which we continue to see strong tailwinds that will -- that we've seen on the year. In fact, our book value was up 3.5% through the end of August, and September has been another fantastic quarter so far. I'm pausing to see analysts write down 3.5%. And September has been strong so far as well. But really also the second part of the book value growth has come from our ability to retain earnings. This is something that Chris, Dash and others have referenced today. But if you look at just the income from our taxable REIT subsidiaries this year alone, it's exceeded our dividend by 2x. So our ability to continue to reinvest in the businesses with our own capital without having to go source it externally has been a really nice tailwind for us. So going forward, this slide Dash called provocative. And after a few hours, it's probably less so because as Fred mentioned, our plan is ambitious but is rooted in reality that we're seeing in terms of trend lines. And also the large addressable market today provides an opportunity that we haven't seen in years. I'll begin with a theme of disrupt and capitalize. These have all been talked about at length. And though it's a forward-looking slide, all of these examples are anecdotes from what we've done historically because our strategic plan has involved disrupting and capitalizing, and our go-forward plan just assumes more of the same. I thought Choice would actually be a good product to illustrate the potential implications for the bottom line. Choice, in terms of our expanded prime product, it represented up to 40% of our total volume before the onset of COVID volatility. And as reemerged this year, we've started to see it as a kind of growing portion of our overall mix. But in terms of Choice, there's a bunch of products that Beth and team mentioned on the business purpose lending side between the 30-year investor products, owned or occupied product, too, on the resi side, single asset bridge. There's a number of new products that we've relaunched or have reemerged, and they're continuing to grow as a portion of our earnings mix. And we project that mix to actually double over the next 4 years, too. I will skip this slide because I think we've hit on. Our growth goal is around doubling our volume. This slide is just, again, I think even though Dash and others have hit on it today, it's important to contextualize and frame that you see big numbers like doubling our volume. And we did put out a public target, as Dash mentioned, in the fourth quarter of last year that we would grow our market share 4 to 5x. That 4 to 5x is really 2 to 3x today, and that's because we've actually been successful in the last 3 quarters of already growing our share. And there's been a series of regulatory announcements since then that have changed our view on the addressable market. So part of our volume, we assume that we will achieve just by growing with our growing market. One central tenet of our plan and has been a key theme today is the power of capital efficiency. We wanted to visually depict what that really means in terms of bottom line for our shareholders with an illustration on the residential side. Beth mentioned digitization and the amount of technology and other process efficiencies. The same ROE expansion applies to CoreVest as it does with resi. There are just very different days between them. And so for simplicity of presentation, this is a residential example. But you can see that we're on track to purchase $12 billion to $13 billion of loans this year. With about 45 days in terms of our whole period on balance sheet, that's about a 20% return. If we fast forward to the next 2 years, we assume that we double volume, and we actually act upon our initiatives through due diligence time lines, the appraisal time lines, our technology efficiencies, rapid funding. Everything that the resi team mentioned drive down turn times in line with what we've seen, another 20%, and you get a 50% higher ROE. That is the power of optimizing our capital, and that's what we're focused on. Pivoting from the mortgage banking operations to the investment portfolio. This has been an incredible source of value creation year-to-date. And what you see on the page here is what remains in the portfolio going forward. So we have about $300 million of net accretable discount that sits in our securities portfolio today, and almost 2/3 of that is in securities for which we control the call rights. That means that we have greater visibility around when and we have a greater ability to execute upon the timing of realizing those -- that discount. For all of those loans too, that call right means that we get to buy the loans at par, therefore accelerating those -- that discount through investment fair value changes. And again, we've seen this to date. We've been recognizing investment fair value changes that have been running between 10% to 20% of our overall net discount. And so this is, again, an action plan going forward rooted in trends we've been demonstrating on the year. Actually, remember this, the SLST component of this slide, and I will point it out why it matters in a few slides. But that is roughly $190 million of our discount sits in the SLST portfolio. We've talked a lot about our model evolving. It's evolved since 2018. There are various new products that we're exploring today, new financing sources. And so as our model has evolved, our risk management practices have evolved in tandem. It's a highly dynamic process, and our key focus areas are constantly changing. And that's not only with our model, but that's just the market more broadly, too. I will probably not go through all of these, but operational resiliency, cybersecurity risk and ESG are topics that are top of mind in every boardroom and Risk Committee across Corporate America, and Redwood is no exception. We are spending a lot of investment in technology around quantifying, understanding, analyzing our risks around ESG. This is something that we are obviously talking to many parties -- counterparties about, as Ryan mentioned, on the Horizons side. And we're committed to disclosing our risks going forward as we catch up with our internal understanding of it. And then in terms of just operational resiliency, as a public company, Redwood has a foundation. Governance Committee is really embedded across our investment processes. We have a really robust internal control system. We have a number of internal risk committees that govern our risk as well. Obviously, as a public company, we have a Board and a number of regulatory bodies. So managing risk has been a central tenet of our sustainability of our 27-year track record. And in tandem with our operational and risk management is our kind of funding -- our focus on our funding and liquidity profile. That has been a tenet of our success as well. What we've -- you've really seen from us over the last number of years is focusing on that non-recourse and non-marginable portion. And so as we think about doubling our volumes in our businesses, getting into new asset classes, it is really with a focus on managing for the long term and managing our growth sustainably. This next section goes through -- we'll call it a forecast but I think, what we like to think of it, as just executing on our plan. If we deliver on these operational and financial targets that we've put out, it generates $1.50 to $1.60 per share in terms of earnings, which translates to a 15% ROE roughly and a 55% pretax margin. And below that, we give the components of that return between the operating businesses and the investment portfolio. There are a few takeaways here, and the most important to note is this is a base case because it does not assume any investment fair value changes or any realized gains. That is one important takeaway and just drawing comparisons relative to historical numbers. The second is around implications for our distribution. Obviously, our dividend is a policy that is set by our Board. So we are not forecasting our dividend today. But even if you assumed dividend levels in line with our historical approach or really competitive dividend levels, this ROE continues to suggest a lot of upside in terms of our ability to continue retaining earnings over time and reinvesting into our business, which will continue to support our ability to organically support our growth plan. And then the last takeaway here is that if you regressed peer companies, not even companies necessarily in our sector, that consistently deliver mid- to high-teens ROE and you regress that against several valuation metrics, those companies command a differentiated premium over time. And as you think about our contribution of earnings mix and the diversification of revenue sources that we've talked about today, the fact that our mortgage banking businesses are going to continue to represent a growing mix -- a growing portion of our overall mix, we continue to think that the market will evolve their valuation approach to us to be more of a sum of the parts, all of which have implications longer term. I'm actually going to go in reverse order because I think this is the next best slide to follow. So that's our base case. It assumes no investment fair value changes of realized gains. But we've talked a lot about sources of potential upside. And so I think that's the right sign to follow. We have $0.71 per share of call premium that we can recognize as we're calling loans at par and then selling them or re-securitizing them at where we see current levels in the market. That call premium is -- the $0.71 a share actually extends through 2024, but the vast majority of those loans underlying, we actually expect to be able to call by the end of 2022. So therefore, a lot of that should fall within the forecast period that we've laid out. And then additionally, we have a $2.60 a share of discount that we talked about. The $0.71 per share only is for our Sequoia and our CAFL deals. That doesn't include any of the RPL securities that I mentioned, which began to become callable by our current projections and given current market dynamics at the end of 2022. So in addition to that $0.71 a share, I mentioned a lot of the discount of our portfolio lies in SLST volumes. So that could be additional upside to the forecast. Additionally -- there's a lot of additionally. Horizons M&A and all the other inorganic or strategic components that we actually expect to execute upon per our plan are not modeled into our base case forecast. So how does our forecast stack up to what we've done historically? The top line is actually our forecast. Because we're not assuming any investment fair value changes or gains, we're taking our GAAP earnings results and the efficiency metrics and profitability metrics that we have here and then backing out any of those fair value changes so that we have more of a fair comparison relative to our forecast. And so if you just focus on the -- I would say the laser point -- if you just focus on the trend lines of the gray bar, you can see that we continued in steady improvement in our profitability and efficiency metrics over time. Okay. With that, I will wrap up not only my section, but I think in -- considering how to conclude today, I think there's no other way to do it than to tie it back to the mission. And so -- and our values, which Sasha just -- and Lisa very nicely laid out. But there's 3 Rs that I think tie together our financial forecast and how our forecast is deeply rooted in our values, and that's responsibility. So we are -- part of our strategic plan is our responsibility to address parts of the housing market that are [ swayed ] by the affordability issue today and underserved borrowers who are not being correctly served by traditional bank channels. So addressing those inefficiencies in the market will help us execute on our strategic growth plan. And then in terms of another R, relationships, both our residential and our BPL teams nicely laid out how relationship-driven our mortgage banking operations are both from start to finish. It's the relationships with our borrowers and our sellers who are repeat customers to us, to the -- our relationships with our investors and our buyers that will create our capital efficiency gains that are critical to the success of our financial forecast. And then lastly, the last one is R for result, and we are deeply committed to delivering on our financial results. To that end, we've actually put out some milestones so that you guys can hold us accountable. Those relate to growth goals, doubling our businesses in terms of volume capacity for our mortgage banking operations, doubling the size of our investment portfolio. Dash even went so far as to put dates around those things. And then on the efficiency and capital gains front, we put out goals related to our turn times to our net cost to originate. And all of those together, growth in capital and operating efficiency gains, will lead to the transformative scale that we've outlined to start the day. With that, I will turn it over actually to myself, and I will invite Chris and Dash and Collin to come up for some Q&A.

So a question back here. All the talk about expanding HPA that's out there and these homes that have no mortgage on them whatsoever, any thoughts about reverse mortgage product? It seems to be [ a weakling ] in the marketplace. And could you see that fitting into your portfolio at some point in time?

Potentially, [ Steve ]. I think that's -- we haven't looked at it all that closely. I think it's probably on a list, frankly, of a slew of products that just speak to this build of home equity. Obviously, the reverse product is germane to a very specific demographic. And it's a demographic, frankly, that has also been more served recently also by some of these rent-to-own products where homeowners in that cohort are turning into tenants and essentially moving their house to other elements of private capital. So it's not something we've looked out in too much detail, but I think it's sort of part of the cloth, frankly, in terms of just how much opportunity there is with this equity in the market to innovate on products and evolve our portfolio and obviously drive other types of returns and revenues.

I wish I had that ringtone. Brooke and Dash, around the portfolio doubling, when we think about the dividend being or the investment portfolio returns being a proxy for the dividend, around the doubling, how much of that is funded with new capital versus retained capital? So how do we think about the impact of where the dividend may go over time as you're able to double the size of the investment portfolio?

Yes. So I would say that right now, we're modeling the ability to actually source 100% of the growth through the retained earnings of the mortgage banking businesses, but that -- there's a lot of moving parts to that, that is very predicated on our ability to execute on our capital efficiency goals for the mortgage banking businesses because they will require more capital as we grow them. But there's a lot of moving parts between what we can fund there. And also, it depends on our -- how our distribution requirements evolve over time. Right now, we're not forecasting the need to increase our dividend just given where our taxable REIT income is today. But yes, in terms of doubling the -- and it also depends on runoff in the investment portfolio and a number of other things. So I think we have the ability to double the size of the investment portfolio without external capital.

You mentioned several times throughout your presentation the potential for a structural change in the business. At what point would you consider that? And what would be the factors that you would look at? I know you guided through 2025 and some strategic goals. But where in that process does that change if you were to do it?

Well, it's not laid out in a specific time line, but I will say that when you look at how the business -- or how we expect to transform the business, the REIT construct just stops making sense. It's a tax election. It's meant to be a tax-advantaged way to hold a passive book of investments. And it's really drifted from the company that we've started to emerge toward. So I think even from a brand perspective, it's not an ideal topco for us. That said, there's a lot that goes into determining what's in the best interest of shareholders. And today, we continue to think that the structure works for us. But when you look at -- it appears that we might find aspirational. None of them are necessarily REITs. And so I just think as we evolve and if we were going to start over, there's other structures that are probably more attractive.

Kevin Barker with Piper Sandler. I just wanted to follow up on your -- the mortgage banking comments around 25% to 30% returns on equity. It's very robust especially given mortgage banking is notoriously volatile. When you think about that forecast, are you making any assumptions around spread widening within the credit markets and how the Fed may react, especially with the tapering potentially coming about as we move through the next 6 to 18 months?

We certainly do, and those are obviously realities of being in the mortgage banking business and are examples of things that impact our neck of the woods as well as the broader markets, obviously, including Agency. I would say that if you look at even year-to-date, notwithstanding -- we've seen a fair amount of interest rate volatility already this year, prognosticators around tapering, things like that. We've seen some real volatility in benchmark rates this year. A slide I presented went back 15 quarters, but if you look more locally over the past few quarters, you've seen some real durability of earnings within our residential business, which I think again speaks to the diversity of our distribution, the effectiveness of our hedging strategy as well as the speed with which we can distribute. The faster we can distribute loans, which is a function in part of how many outlets we have to distribute loans, our hedge costs go down and some of that volatility becomes less impactful to our returns. A lot of the pockets of capital that Fred was describing with the banks and the insurance companies, a lot of those bids in the market don't necessarily move in tandem with TBAs or benchmarks. And so there's a stickiness to that bid, some of which is certainly driven by some of the supply-demand dynamic that Fred touched on, which we think helps a lot. In BPL and one thing Beth and the team touched on just the operational moat, particularly within single-family rental, I think, is a really big deal as it relates to durability of margins in that business. We talked about the smaller balance 30-year, what we call DSCR loans, which a bunch of folks are making. As Beth referenced, those are being mixed into non-QM deals as well as stand-alone deals. But the "benchmark" product, which we're -- as Beth said, building a lot of concentric circles around, the core benchmark product, the 5- and 10-year cross-collateral as SFR alone, it's still out of reach for many to produce profitably and efficiently. And that's a really big deal for margin durability because the need in the market for those types of loans is growing as more capital comes in as our borrowers grow. There's a cyclicality in the broader market that from our perspective, for those reasons, BPL is much less exposed to. And I think we've seen that year-to-date, notwithstanding the volatility. And if you look at the margins in both businesses, I think it speaks to some of that.

Actually a question really for Fred. So Redwood Choice used to be over 1/3 of production. What takes it back to that level? And longer term, what's the mix likely to be between Select and Choice?

I'll take a swing at it. The Choice origination is really constrained by the capacity at our loan originators. So there's just so much volume that the Choice loans are a little bit harder to originate. It costs a little bit more, and there's so much volume in the 780 FICO, 66 LTV stuff that they're just overwhelmed. So they really -- the big constraint right now in this interest rate environment is the capacity at our loan sellers. Having said that, their capacity is inversely correlated to interest rates. So for example, when interest rates went up, call it, 50 basis points really quickly at the beginning of the part of the year, Choice production went from low single digits percentage of our total production to about 15%. And then it's come back down to probably, I want to say, 8% to 10% now. So we did see that pick up. So our thesis is as interest rates, if they ever go up, sure, the volume may drop, but mitigating that is we'll see a big pickup in Choice. And those tend to have higher margins. They tend to be less interest-rate-sensitive and easier to distribute, frankly. They're not quite credit products like you see in BPL, but they're also -- they yield more than the prime Select stuff, and there's a big appetite for that particularly at insurance companies. So I would say that if interest rates go up, we'll see a pickup, and we did see that earlier this year.

The only thing I'd add to that, Bose, is we have locked Choice loans with the vast majority of our seller base. So it's not an adoption issue. John and the team have led some really important foundational groundwork over the past year, reeducating LOs on the products, what it means to sell a Choice loan to Redwood. And so we're ready to go. And like I said, the vast majority of our base has already readopted it. It's just a matter of some of the market conditions that Fred is referencing coming back into focus. But the seller base is ready. It's a function of some of those drivers that Fred was articulating.

Great. Can you talk about the scalability of the distribution channels as you look to double your volumes?

By scalability...

Scalability.

Scalability.

Are the buyers there today to take twice the volume? Or do you need to continue to grow those distribution channels?

I personally think the buyers are there. We need to work on technology and ways to distribute loans fast ourselves, turning warehouse facilities more efficiently. But certainly, the buyers are there. I think for both businesses, the balance we've achieved between home loans and securitization is very much by design. There's certainly been periods in the market where PLS was 100% the best execution. And I think as Fred or John noted earlier on the resi side, we deliberately make sure that we're active in both because you have to keep those relationships involved and interested. And as we've progressed throughout the year and we're having a record volume year, our home loan distribution is at a record level. So we are -- we continue to find buyers. And as recently as the past few months, we've continued to see very strong interest. So we're not having any problems placing loans at this point. That's not been a constraint. And the BPL business works a little bit differently because we're primarily an originator. But I'd say the same thing there. There's just been continuing strong demand for product. Obviously, the POS market has been a fantastic execution, but there's also a correspondent market out there as well. So distribution, I don't think is going to be a challenge. I do think that the inertia and the work streams in the non-Agency side and why we keep emphasizing technology and innovating around some of these antiquated processes is what's going to unlock significant scale for us.

Is it me? All right. As the balance sheet continues to evolve, you guys built some capital and such. Can you talk about your appetite for unsecured debt?

Sure. Yes. It's definitely something that's been an important component of our capital structure in the past. And I think it's something that will continue to be an important component of the capital structure going forward. As we grow the balance sheet and as we're able to retain capital and grow equity, when we think about our leverage going forward, when we look back to last year through the pandemic, we saw our leverage go down quite a bit. We've been building that back up as the business has been growing over the last year. And at some point, I think it would make sense to definitely layer on some additional unsecured debt and the capital structure would be able to support that. So that's definitely something we're always keeping a close eye on, and it's something, as the business continues to grow, that we'll continue to evaluate closely.

I think that's the last of the questions. So if we don't have any more, then we'll close the afternoon or I guess the evening. Thank you, everybody, for being here today. Thank you to everybody that joined us via webcast. And the bar is open, and we'll be adjourning...

Short trip to the bar, I guess.

They are going -- just a bit of housekeeping, they're going to turn the room for dinner. So if you don't -- you should take your things with you. There is a coat check in the hall if you'd like to leave your bags and other things in a secure location.