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

Thank you, everyone, for joining for Redwood's Investor Day. We're thrilled to have you. We have a full afternoon and without further ado, I think I'm going to hand over to Chris, who's going to kick us off.

Clock is already running. Good afternoon, everybody. Welcome to our 2024 Investor Day. We're very glad to have you, especially those of you who made it in person, to those of you who are virtual, welcome. We have a lot to cover today. We've got a lot of great content. We've got some great speakers, and we don't have a ton of time. So we need to get into the concept. But before we do, I don't want to bury the lead. Did anybody see the press release this morning? On behalf of Redwood, we are so excited for this partnership with CPP Investments. This is a long time in the making. It took a lot of effort on both sides to make this happen. And we've talked about structural liquidity [Technical Difficulty] what today is really about is what it means to own RWT. So Redwood, owning Redwood right now to me the most distinct way I can answer that question is owning RWT means that you hold the keys to tremendous optionality for the future of housing finance. This franchise and our positioning is extraordinary. And we have been very, very focused on optimizing the platform for some time. And when we get into some of the content, I think you'll see what I mean. Our mission at Redwood, we have a big mission. Many companies don't use missions anymore. I think we're an exception. I would argue that 9 out of 10 of our employees can recite our corporate mission, which is to make quality housing where they rented or owned, accessible to all American households. It's a big mission, quality housing, quality shelter. We do a lot of rehab loans. We do a lot of loans on the coasts where government loan programs don't reach. We try to fill those voids. And we're trying to create access for all American households. Not just all Americans. So it's a big mission. And to achieve that mission, you need people who are up for solving big problems. And it's funny when I was reviewing the slides from our last Investor Day, the most impactful thing that I noticed was that the management team is completely intact from 3 years ago. How many of our peers can say that. People that come to Redwood want to be here. They want to solve big problems. And they're not just looking to sit on eggs to oversee a passive portfolio and clip coupons and tweak leverage. They're here to make a difference in their communities and society. And so we have big problems to solve and today is about demonstrating the full power of the franchise. And fortunately, when it comes to our mission and all the things that Redwood does, we don't always get to those things on a quarterly earnings call. So today, hopefully, you find out what it really means to own RWT. Fortunately, we have a lot of help to articulate that. We've got a number of outside speakers. We're going to start with a bank panel after my remarks. We've got the 2 Erics and Mike Brown. And these are 3 bank executives who are going to talk to you from their perspective about what it means to partner with us. And I think I hope after you hear this panel that you'll understand why we're so excited about unlocking this channel. We're going to talk about private capital and partnerships. There's definitely secular changes happening in the sector, which I mentioned. I think they're going to be transformative. And if you're not aligning with this structural liquidity as we like to call it, you're going to be left behind. So we'll cover partnerships. We're going to -- we have a government panel that's when things will get [indiscernible]. It's an election year. And we've got some panelists who are up to the challenge. We've got 2 former heads of the FHFA. Wow. We have Jason Cave. Where's Jason? So Jason just did a stint at FHFA, but he spent a lot of time at the FDIC, helps write a lot of the Basel content. You think he has some thoughts on the end game that are going to apply to this room. And Isaac, where's Isaac? I'm just trying to make sure these guys made it. I'm not sure Isaac made it. But if he does make it for his panel, he's one of the best GR guys in the street, and he's a very funny guy. So you guys will enjoy hearing from them. Armando has, as I told them, Armando has the hardest job of the day to keep this one under 30 minutes and to keep [indiscernible] from breaking out within this room. So we're going to move on from that and we have a mission panel before we open it up for Q&A. And that's really going to bring, I think, the day together. And what it means from Redwood's perspective to serve our company mission. We have -- let's see, we have Chrissi Johnson who's here, somebody who's worked with Redwood for many years. It's great to see [indiscernible] your own shop with alignment. Where is Carlene. Carlene, oh the resident, OG, Carlene Graham, is always up for these discussions. And then we have Faith sitting next to Carlene. Faith in D.C. needs no introduction. Her advocacy for affordable housing solutions, advocating for underserved communities and access to housing. To me, we were so impacted by Faith's work that 2 years ago, we asked her to join the Board, which she did. So we have a great group. We've got a great slate. Before I get into my actual content, and I'm already behind. I did want to quickly thank Kait Mauritz and the team who put this on today, if you guys don't mind, just give them a quick round of applause. A lot of effort goes into doing this and doing it well at the Oak Room, which is such a cool location. It's funny. I was talking to Kait on Sunday, and she told me that there were 18 equity analysts here today, which I thought was funny for 2 reasons. Number one, I didn't know there was 18 that covered Redwood, which is great. But two, it just may be you must have -- and that's why we love and that's in the business. And that's why we love her, and that's why she's the best in the business. So let me -- let me get started. I'm going to move to this pretty quickly because we got a lot to cover today. So just to bring you forward from 3 years ago when we were in this room, there's only 2 things that I think really matter. This is the first one. That's an ugly chart. I will say, candidly, for a company that's focused on generating alpha, it's really hard when you're fighting the gravitational pull of this type of beta. I mean this to me it's like an electric car company where the price of a barrel of oil goes to $10. Hey, David. So it's been a very challenging period. The good news is all that does is make the turn that much sweeter. And I do think most people in this room, consensus is [indiscernible] start easing at some point this year. It just keeps getting delayed and delayed this last mile has been painful, but I do think we're at the very end of this point in the cycle with the path of rates. The other thing we focused on was strengthening our market positioning. This is a pretty -- for somebody like me, this is pretty exciting. This business 10 years ago was basically Redwood Residential. And even within Residential, our core business, we're trying to unlock an entirely new channel with banks. That will be a big part of today's discussion. Redwood Investments. Our partnership with CPP investments, the makeup of our portfolio is changing pretty dramatically. And we're moving away from direct portfolio lending and we're moving towards investing in JVs. One really big positive there is these investments, the durability of these cash flows and the predictability of these cash flows will be greater because we'll have things like AUM fees and other things. So Redwood Investments is alive and well, and we expect to grow. CoreVest, our investor loan platform, still a nascent market, still tons to do there. Our market positioning is fantastic. We've got a great team. So we're excited about that business. RWT Horizons was just an idea on a pad of paper a few years ago. And over that time, we're making money. We've invested in a lot of start-ups. We've got some pretty exciting potential home run balls there. I mean we're invested in AI start-ups. You guys saw us incorporate blockchain from one of our startups into our securitizations. So having that optionality back to the optionality of the platform is, I think, really, really cool. And then Aspire. Aspire, I think, is one of the gutsiest things that we've ever done as a company. We basically took a start-up that was in horizons, and we sort of built it ourselves and have incubated it in the process of rolling it out. It's exclusively focused on home equity and boy, look at that addressable market, $30 trillion. So that doesn't get you excited in this business, I don't know what it does. Talking about where we've been. Obviously, housing transaction activity was one of the first things to go when rates shot higher. We all know that we're basically at half the levels we were a few years ago. The good news for us is that not all of that money went into NVIDIA. Actually, a lot of -- a lot of it is sitting in cash. And this, to me, this chart shows that the Fed has been relatively successful. They pull that money out of the economy. They put it in the hands of savers. It's sort of off on the sidelines. The good news is, is that I believe that the first sectors to go when rates went up, will be the first sectors to come back and so when rates come down and that money pushes out, seeks duration, pushes out into risk assets. I personally think when you see that gap on the end between the number of homes and the number of listings, that is just way out of balance. And what we've noticed on the brown line is that any time that the market has perceived that there's going to be a decline in rates, you've seen activity shoot up. The market is eager for transaction activity to go higher. And what it's going to take is a little bit of help from the Fed. We keep thinking that we're there, but even as of today, we're close, but not quite there. So hopefully, the second half of the year, I think, is still consensus. This slide, if I may, to take things at an even higher altitude, I think this is the most important slide, at least from my presentation. Every cycle in housing finance has started with a crisis and has created a regulatory response that triggered a wave of IPOs and a wave of capital flows that's really, really profound. And anybody that's been around like Steve and other people in the industry, this chart looks pretty familiar. If we go all the way back to the S&L crisis, you started with thrifts, rates shot up, the value of the mortgages went down, deposits were capped. A lot of these thrifts turned into zombies, deposits became uncapped. They doubled down. More of these [indiscernible] became zombies. Eventually, [indiscernible] on the back of that, came the rise of the Redwood and the analysts and the MFAs on the back of that crisis because a lot of these firms, thrifts and insurance companies and pension funds needed somebody to take these mortgages off their hands and we specialized in that. We would securitize those 30 years ago, that was our business on the back of a crisis. The GFC, we all know kind of what caused the GFC, but look at what happened. The Dodd-Frank Act went into effect. The CFPB was created. There was rulemaking by enforcement, we all remember that. And what was the response? The banks largely got out of credit. The banks got out of [indiscernible] they got out of subprimes. They got out of option arms. They got out of servicing those products. And you needed nonbanks to step up and look at all the IPO activity after that crisis. I mean a lot of these firms are now household names, [indiscernible] largest originator in the country. Here we get to COVID-19. And the CARES Act, I think there's a lot in the CARES Act that doesn't apply today that will, which will be fun to talk about over drinks. But I think the real takeaway here is unprecedented Fed QE. Not only did the Fed take rates to 0, but they poured gasoline on the fire and they bought mortgages. It created the biggest refinance boom in the history of the housing market. And on the back of that, you saw on the tail end, the emergence of these nonbank originators IPOing, The Rockets, United wholesales et cetera. So here we go again. We have a regional bank crisis. We have banks, flash crashing of banks and lo and behold, surprise, surprise, there's another regulatory response, the Basel III end game. And while nobody knows for sure what the final rules will say, thankfully, a lot of it's going to be rewritten. A lot of it made no sense. It was hastily done. When we talk to bank executives, everybody is expecting some form of final rule. But even if there's not a final rule, there is definitely a life too short aspect to piling back into long duration mortgages. You look at these failures, you look at the NIM squeeze that banks are enduring, if you're sitting on a book of 3% mortgages, and you're paying 4-plus percent on savings accounts. This is a problem. And this is not the type of problem that you want to double down on going forward. We offer solutions. This is what we're trying to do with the banking sector and John Groesbeck and Carlene Graham and our team are doing a tremendous job reforging these partnerships that we actually had in place 20, 30 years ago. You look at the share that banks have seeded to me, we love our IMBs, but this just seems out of balance. Doesn't it? It just seems like it's out of equilibrium and our job, the service we can offer banks is to help preserve their market share or grow market share as a capital partner. We don't originate mortgages. We don't service mortgages. We don't take clients. We are a liquidity provider and we can derisk the banks to the point where aside from the operational piece of Basel, the risk capital piece won't apply if you're selling the mortgages. And the beauty of what we do is we match fund long-duration assets. That's the securitization business. In this chart, I don't like to put competitors' names in our charts, but this one looked pretty good, so I included. I'll also say I confirm that this chart came from JPMorgan. So Jared and Brian, if there's any issues with these numbers, I'm going to blame you. Redwood has been in this business when it's been an ugly business, when it's been a great business. And when banks are looking for a partner that's not a bank, not a competitor, we have been their first call. And that's been pretty awesome because we're going through a cycle or part of the cycle where supporting banks is back [indiscernible] and that's what we do. I'm going to quickly go through the next few slides just to keep us on time. But we talked about the rise of private credit. And the reason why this is important is for us to be a good partner to banks, we have to have access to solid liquidity. We've seen the problem with overnight liquidity with deposits and what's going on with what I call structured liquidity is you have pension funds, you have sovereigns that are taking in consistent amounts of money from savers from people saving for retirement and so forth and tapping into long-term durable liquidity is the key to running this business over the next 10, 20 years. And you've seen the rise of private credit. Obviously, with our CPP partnership, this is exactly what we wanted to get out of this deal. What CPP gets and what our partners get is access to the raw material that we can procure on the ground level. So we originate BPL loans every day. We've got 200 originator network in resi? We are on the ground level one by one, sourcing all of this product. That's a lot harder for a big institution to do. So it's a great partnership. We'll talk about it. Now before I wrap up, I wanted to make sure I had a few minutes to talk about Aspire. Again, these are things that we don't have time to cover on earnings calls because they're not major needle movers today. But I think this is one of the biggest opportunities that we've taken on as a firm. When you look at where we're at on loans being in or out of the money, 82% of first lien mortgages as of today effectively over 200 basis points [indiscernible] you're not going to be able to access the capital in your home without better solutions on home equity. Aspire, basically, what Aspire is, for those of you who aren't familiar with this concept of HEI is it's an alternative to traditional second lien products. So most people today walk into a bank, and they are interested in a [indiscernible] loan or a second mortgage. Most people, even prime consumers, are quoted a rate north of 12%, 14% and they don't find that compelling and they walk out. There's a huge use case for HEI as an alternative to that. For an HEI for a $300,000 home, maybe we'll give you a $60,000 and there's no payment attached to it. We become a partner in the equity of the home, and we participate in the homes upside over time. Now this has been a great idea and the demand from consumers has been off the charts. That's why we're so intrigued by it. For the use cases, paying down debt, fixing up your house, retiring early because you're a few years away from qualifying for reverse mortgage, all of these use cases are tremendous. The problem has been aligning that with capital. If the term is 30 years and there's no interest payments, how do I get my money back? That's where Redwood comes in. Number one, the structuring that we've done to incentivize homeowners to refinance the product is really, really interesting. We've implemented rate caps to make sure that investors aren't sort of misaligned with homeowners. And ultimately, for loan officers, we're in the process of rolling this out to our full origination network. So right now, startups are dropping leaflets. They're spending a lot of money on marketing direct-to-consumer because they don't have the network that Redwood has. For us, we can roll this out to our loan officers tens of thousands across the country. We can let them sell the products to the clients. And if we can rebank them in a few years when rates go down into a traditional [indiscernible], it's another bite at the apple and it's a way to preserve that customer loan officer relationship. So it's a pretty cool idea. And again, if the products in the market today, we're solving the problem we wouldn't have $30 trillion of home equity, I think it's $9 trillion of debt against it -- it's a huge opportunity. So I'm going to wrap up before I hand it over to our banking panel. And this slide is really just meant to summarize what I've tried to convey today, which is the punch card for why owning RWT. Obviously, we're levered to a Fed easing, which, again, I think we're in the bidder end of this long hike cycle. We have partnerships in place, not just theoretical partnerships, tangible partnerships for transformative scale. We do have a few home run balls that we're hoping to hit here that don't show up in our day-to-day, but are part of the franchise. And if nothing else, just a lot of discount built into the stock. It's pretty profound. I wish I didn't have to say this, but we've got north of $5 a share between the portfolio trading at a discount to par. By the way, the vast majority of recapital is priced at a premium to par. It's levered to rates going higher. At this point in the cycle, I don't know where you guys would rather be, but I feel pretty good about accreting discount, if rates come down. And of course, the stock is trading at a discount to book. So it's a really compelling opportunity, a really compelling entry point at least to me, and you factor in the possibility for AUM growth and ultimately, the fact that we're trying to solve big problems as a franchise, as a company being part of that, being an owner in that. To me, that's what it means to own RWT. And so hopefully, that resonates. Fortunately, we've got a lot to unpack over the course of the afternoon. So this was a higher altitude presentation. What I'm going to do now is I think we're -- I think it's time for our banking panel. So I'm going to welcome Dash Robinson up to the stage as well as Eric and Eric and Mike.

I'm going to be up here a little while, so I have a few little papers, sorry. I appreciate everyone being here. Before we get started, I did want to echo Chris' thanks for everyone's support and being here today, and we'll -- we'll have plenty of air time on CPP as well later on. But to start, really excited to be moderating this panel on sort of private capital and banking. As Chris articulated, a lot has occurred over the past year in the banking industry, much of which is important strategic tailwinds for our business. But what's really important, and I think if you look at the 30-year fabric of the company is that what works on paper also has to work in practice, right? Ultimately, this is about partnerships. And you have to show up for your partners operationally. You have to have the right boots on the ground, understand what it means to buy a mortgage to sell one, what it means to partner with banks that have unique processes to serve consumers. And ultimately, that's how we've always differentiated ourselves in the market, just that level of service and so the past year for our residential franchise has really been about adapting and making sure we're ready to meet the moment, but we want to get out of this panel today, and I'll introduce our panel shortly and get into it, is really give the audience [indiscernible] for what it means to be a good partner in the jumbo business in residential and how this group up here thinks about partnership and why partnering with Redwood makes a lot of sense. So I'll quickly introduce our panelists to my immediate left is Eric Schuppenhauer, who's Executive Vice President and President of Consumer Lending at Citizens. Mike Brown is a Managing Director in Global Securitized Products at JPMorgan. And last but not least, Eric Bisman, Senior Director of Cap Markets at Ally. I got all those titles right and didn't unwittingly demote anybody there. But -- just quickly, maybe, Eric, to my left, I'll start with you, just a quick introduction to your seat, your institution and some of the history with Redwood and we'll go down the line.

Yes. So real quickly, Eric Schuppenhauer, Citizens Bank. Citizens Bank is a $222 billion financial institution based out of New England, but Providence Rhode Island is our headquarters. But we have operations all the way down here. You'll see us in New York City. We acquired HSBC branches as well as ISBC Investors Bancorp, really solid capital position, solid liquidity position across the landscape and really been trying to play a good game of defense as well as a good game of offense during this time period. And as it relates to Redwood Trust, our relationship goes back a couple of decades now in terms of our relationship of buying some loans as well as selling some loans and we've always found Redwood to be a great partner and likely always our first call when we're thinking about what we want to do next.

Mike?

Mike Brown, JPMorgan in securitized products. We sit in the investment bank, part of the markets business. And I focus on the residential side of that business on the financing and securitization side of that business. I think what makes us a little bit unique in the ecosystem is our partnership with Chase Home Lending, we work very closely with them with all things related to capital markets, and it provides a unique liquidity toolbox. And we've seen that go to work in recent years with the things going on in the pandemic and with what's been going on with rising rates.

Eric Bisman, Ally Bank. I've been there about 13 years, primarily test with non-agency investments and consumer [indiscernible] investments for the securities portfolio. In that end, I also helped stand up our bulk mortgage acquisition platform. And that really was a segue into the interaction with Redwood both as an investor in the private label securitizations of their [indiscernible] and then the segue into buying jumbo whole loans for our portfolio opportunistically, kind of through the ebb and flow of the post-crisis cycle here. Chris pointed out a couple of the trends here as an issuer, but embedded in standing above and beyond the rest of the peers of issuers. Since the crisis they've been able to navigate both securities and whole loan execution. And I'll just emphasize, they've been an incredible partner to us for 13 years, almost my entire time in Ally has been involved with the Redwood. So I'm thrilled to be here.

Great. Thank you. Eric, maybe I'll start with you. It's obviously been a busy year for everyone. I think each of you has played the past year a little bit differently, but the commonality is seizing on opportunity with some of the location frankly. Recently, you guys very publicly announced the strategic push into the West Coast, particularly California, to serve a pretty interesting customer niche there that maybe less a little bit underserved with some of the other goings on in the market. Maybe you could talk about that decision and what is [indiscernible] going forward?

Yes. So last year was a tad bit interesting almost a year ago from the date we're sitting here. You were just put on a rocket sled to think about, all right, where do you need to place some components of defense. We shut down some components of our business like our auto, our indirect auto business and shut that down. We pulled back on some other asset classes. But at the same time, we decided we needed to play offense. So we continue -- we've got one of the highest capital levels among the group as well as one of the highest LCRs from a liquidity standpoint even compared to Category 1 banks. We said, "Hey, look, we need to play a good game of offense" So we did the expansion in New York City, but we also have launched a private bank. And from launching a private bank, completely different business model within our franchise to continue to grow wealth. That took us out to the West Coast, and we pulled some high-quality bankers. And that means we're now originating on another coast. We're not a stranger to jumbo. We've been in the New York City market for years and years, probably have -- some of the best mortgage capability in the city. But the reality was California, and I remember this back from my chase day, it presents a whole new set of things you need to think about, just lending in San Francisco, where you know [indiscernible] well. It's a whole different ball game. And so that's actually what we've been doing over the last year. So we've added teams in Palm Beach, Florida, California as well as that some additional teams in New York and Boston really trying to make a push. But that brings additional jumbo exposure, and you have to think about what's your flexibility with respect to what you want to do on balance sheet versus off balance sheet and always looking for that liquidity, that liquidity valve, if you will, to be able to go multiple directions from a balance sheet perspective.

Great. Eric Bisman, I may shoot it to you. Obviously, your bank is very active in both in auto and residential. Maybe you can spend a minute talking about some of the past year, how balance sheet management approach on your side has changed just given some of the rules that are pending. There's still uncertainty around some of those, but maybe a view from your seat just around consumer broadly, given your unique footprint.

Certainly, the landscape has changed, and it's still fluid in terms of the pending changes, the comment period and potential of a reproposal. But as Chris mentioned earlier, we can't wait around necessarily for what the final rules are, and you have to take some proactive steps. Part of that is just what the evolution of the balance sheet looks like thinking through funding and liquidity needs, but also capital and the emphasis on risk-weighted capital and trying to migrate to higher yielding, higher earning assets relative to the more risk-weighted capital and those that are maybe lower yielding. You're thinking through banks in general are going to be tested right now. We're thinking through capital optimization strategies, how to unlock some of that capital and then how to redirect some of that capital and allocate it into higher-returning business segments. And that's kind of how we've taken the approach. We're looking at the balance sheet holistically, finding where there are areas that we can improve and redeploy capital and then allowing some of the lower-yielding segments to run off or work with partners here to better manage and be nimble around how that balance sheet evolves and then how we achieve some of that capital relief, no matter what the final outcome is. I think you have to be taking proactive steps and us and other banks are all undertaking, I think, that type of approach.

Thanks. Mike, maybe to you, as you mentioned, you obviously work closely with Chase lending, obviously, massive mortgage lender, but through your business, you also face a lot of bank clients, bank CRT and capital relief is definitely top of mind. Maybe your take on what's going on there, the capital markets element. Chris talked at the top about the importance of private capital in this whole ecosystem. Now maybe your take there given your unique [indiscernible].

Yes. So over the last few years, we have seen that sea change where the bank's role in the market has definitely shifted. We've been pitching and working on that risk transfer capital relief on the mortgage asset for a very long time as well as the auto asset. And 3 years ago, you were making phone calls and people were flushed with capital, flushed with liquidity, and there was really to do. And now it's completely shifted into a space now where there's plenty of conversations going on, and I think you're going to see more of that. I think what that means for Redwood that I think is really well positioned is that even in an environment now where we're starting to see a little bit of bank buying come back in the senior parts of the capital structure in the market. That capital need is there now, it's going to persist. And I think you all will be well positioned to be a solution for folks.

Great. Appreciate that. I'm going to pivot quickly to the regulatory side, but we have a -- we have a whole separate government panel, which is going to tear this issue apart, but I wanted to just talk a little bit about asset liability management. I think sort of acknowledged as recently as a few weeks ago, Chair Powell indicated that the Basel game is likely to evolve. But I think a key piece of our messaging to the market has been irrespective of that, banks are evolving their thinking around balance sheet management, just given deposits and some of the realities of duration where rates have gone. So Eric, I may put it back to you in terms of how you're thinking about just this environment, irrespective of Basel and what moves you've made or are preparing to make here over the next few quarters?

Yes. I think we started it years ago just in terms of maintaining good interest rate risk management, good balance sheet optimization, the decisions of what assets we're coming into, going out of creating additional flexibilities such as the things we've been talking to and the team about DASH. Just all these having some avenue. We've done some trades on our auto book from a financing standpoint, which has been very positive. But I think the way we think about all of the capital and liquidity component is just to be prepared for multiple scenarios. And that's what the stress testing and other things have made us do. And Eric, I think you said it best is just to prepare yourself such that you can be in a really good posture to be able to continue to play offense in this market place because we want to take advantage of some opportunities where there's dislocations. And that's the way we're thinking about it. So we're pushing into some of the private capital, we're pushing into the private bank. We're pushing into New York expansion strategy because I think while you play a good defense, you make sure you're in a good solid capital and liquidity position, it's being able to have the opportunity to do that.

Mike, I'm interested in your take on this, particularly around true liquidity of products. Obviously, there's a lot of capital rules, but some of these structures are complex. And I'm just curious your take on sort of the right type of capital markets fit for some of the needs. I think what we learned somewhat through COVID and certainly over the past year or so is that capital ratios are what they are, but in terms of true liquidity, it comes down to how the loans are made and [indiscernible] of the capital markets part. I'm just curious your take on all that given the importance of.

I could speak to -- look, so our relationship with Redwood is we know Redwood is borrower. We know Redwood is issuer. Redwood is a trading partner on loans, securities and derivatives. And I think your position in that marketplace in the way people think about making their investment decisions is that you've been in the market consistently from a branding standpoint, high-quality underwriting and you've been consistent, right? You've issued in good times and bad times. And you've built out liquidity partnerships to where you don't come to market in a sloppy sort of way. So like the -- if I had a button, I push the slide that Chris had up there where you guys were the tall tree. But it was -- it really kind of explains -- I mean you look at a lot of those names, those are people that jumped into the market when it was hot, when a policy was creating some tailwinds, and you haven't seen them issue since. And if like you all experienced, a lot of that activity really did mess up the market at the time when they were coming in being kind of [indiscernible] I think you guys are -- you're consistent. You've been around a long time. You provide leadership in the marketplace. And I think over time, the market pays you back for that and some of the banks that will be coming in and making those decisions, you'll be first on the list as like that benchmark name.

Great. Eric, maybe. Go ahead.

I was just going to add to Mike's point because I mentioned earlier, we were -- we started out as a buyer of the securities in the resurgence and [indiscernible] of the PLS market post financial crisis. And I think it's important to frame that Redwood founded in 1994 off the savings and lowness crisis, and be franchised for the non-agency market. And so they've been through some cycles and there's a perseverance factor there. But you think of them as I think of Redwood as the leader post crisis in restarting the 2.0 jumbo securitization market. We were the only buyers in securities there. If you think about the rate environment, and this is going back a little bit in 2013, 2014, Redwood did a dozen deals in 2013, just over $5 billion of issuance. In 2014, they did a quarterly cadence at maybe just a couple of billion, maybe $1.5 billion. Part of that is what the backdrop to the securitization market was back then. And to Mike's point about the agility and the ability for Redwood to adapt, Redwood was predominantly acquiring loans and securitizing. That was the exit value. And then they created another disposition channel through whole loan sales. I sat in this audience maybe 10 years ago when the selling of loans to banks to portfolio buyers was an alternative strategy to securitization. And I think in Chris' chart with the tall tree there, not only was there a heavy volume post crisis, but the agility to pivot from securitizing and then solving the exit value to a whole loan takeout like us, and so we got to play both ways. We played in securities, pricing would ebb and flow and then we can participate in whole loan sales as well. And I'll just add that speaks to the durability of the team and the leadership in place. A lot of us go way back. We go back almost the duration of our relationship, and I have been dealing with the same folks on the trading desk and the securitization execution for almost a decade and I just think that speaks volume and the continuity that you guys bring. I just wanted to make sure I stress that on.

I appreciate it. This is a very well prep panel, as I just wanted to point. Eric, I wanted to pull on that string quickly. Obviously, every trade has 2 sides, right? As you articulated for well over a decade now, we've historically been a seller of product to you. To the extent that strategy may evolve, how does that experience buying loans from us influence your thinking about us as a partner for other facets of the relationship?

Yes. We've been very familiar with the product. But I think the team, Carlene's here, we've dealt with [indiscernible] and other folks from the trading side, the [indiscernible] a whole host of folks that we've dealt with over the years. John Groesbeck, I think I have 6 pens of his that he gives to me every time I come here. But I'd say that the bedrock of like all that trust and reliability, operational excellence, strong underwriting, strong quality controls, I'm proud that the Redwood loans that sit on our held-for-investment mortgage balance sheet are some of the best underwritten and high-performing paper that we own in the mortgage landscape. And so when you think about that relationship, and the ability for us to tap into potentially a liquidity partner that we may need if we want to opportunistically sell loans or better manage our balance sheet, I think you have 12 years of trust, reliability, continuity with a pretty stable leadership team and trading team that it gives us confidence if and when the time arises for us to sell loans. So absolutely no reservations there partially because of the comfort that we've built up over the years.

That's great. Eric, I may ask you to elaborate a little bit on that. Jumbo is not an easy business, right? It's high touch. There's no [indiscernible] easy button as there -- that's even the right word for it as there is [indiscernible] it's not even easy. But this is -- it's a bespoke market in a lot of ways. Maybe you could just spend a minute talking about what you're looking for in a partner really in the [indiscernible] and all the particulars and specifics of making sure a jumbo loan is made right on day 1 at point of sale to the consumer and what that means [indiscernible].

I mean -- and I would actually say, from a partner standpoint, and you guys have proven this, you get it, right? You get that what is a client or a customer in that need in that moment. They want to make sure you act like you know them because if they're a bank client, they expect that you already know a ton about them. So you can't put them through a long, laborious process. So they want certainty quickly. They want it to be at a good cost. So you have to be able to be in a market that allows and provides for that. And it really comes down to be able to get clear to close fast and just take the pain away. And that's the power of jumbo underwriting. At the same time, it's bespoke as you said. So every deal is a tad bit different, and you have to be able to provide for that and that's what I think is really important about the partnership is being able to have those pipes and you guys sweat those details to be able to make sure that we're able to do that in a way that can execute into the public markets or into a loan fund. And that's what we're looking for in a partner. It comes through the sustained power of leadership because a lot of times, you'll have people that will show up. And I think Mike, your point is pretty spot on. People will dial for dollars every now and then ask you, how can we help you? You guys don't do that. You actually are always in it to help us put together solutions that will be always on capabilities because you get the end client need.

That's great. Thank you for that. Mike, I may turn it to you. We've obviously done business across the board for a long time. We've bought loans, sold loans. We're kind of competitors, you have a correspondent channel as well. I'm just -- maybe you could comment on our positioning and just how you think about picking us as a partner for capital markets business -- across the board.

Look, I reiterate like the tall tree slide really breaks it down. You've been in the markets. I actually share 1994 was my first year in the business. So you've been around the block a few times as an institution. People know the name, they trust the name. I think and that gives you a benchmark status, and we've seen through all those cycles that were listed on that page that we've been in, they required some sort of leadership in this space to open the market at some point. And I can think of so many times when it was that, that the [indiscernible] deal that was opening the market and kind of providing that leadership that the market needed. Like I said, very well positioned. I think not to steal thunder from the government panel, but we've been talking most of this panel about the opportunity. We're getting a preview of the opportunity that you have when the bank balance sheet is less efficient. The other sad reality on this side of the great financial crisis is that 95% to 97% of every newly originated mortgage is routed to some sort of government ramp and I think dialing that back to something is a little more reasonable when you got into the early 2000s before running up to the crisis, where it's more like an 80-20 or 85-15 market. You all are also very well positioned for that. I believe that the policymakers are going to eventually get it right. Just hoping it doesn't take another crisis to address it.

And we'll find out in the later panel, as you note. Eric, maybe your point on the customer. And Eric here had mentioned it as well, one of our big value propositions obviously is we want the loan, but not the customer. We're happy to not at all dilute that broader customer relationship. We're not going to cross-sell a checking account or anything like that. I'm just curious, how important is that to you, given your holistic view of the book?

Yes. I think for us and I think for all banks that value the customer and want to be able to cross sell or have multiple products for their deposit franchise. Mortgage is a key component in the banking landscape, but there is always a worry across banks that you would sell your customer with the servicing and then lose the ability to cross-sell products. I think the solution Redwood delivers and is pitching to the bank community is you can take the loan and the customer and that relationship stays embedded with the bank. And I think that's a key proposition that has always been a fear of the banks and their customer base. The challenge is, and it was touched upon earlier, the regulatory changes post financial crisis, specifically in MSRs and servicing has changed how banks treat mortgages in general, but I think there is still an entrenched view of the customer value, the servicing, but if the loan cash flow can go to you to a Redwood and that can be utilized and executed downstream to securitizations or elsewhere, I think it's a viable alternative that you'll see banks really explore here.

That's great. We have a couple of minutes left. I want to just go down the line and closing and just maybe get you all of your guys' take on the origination market where, I guess, officially in the spring selling season, we saw some green shoots, I guess, this [indiscernible] on starts. Chris has weighed in on rates. We've had a pretty seismic settlement with the realtors, which should make transacting on a home meaningfully more affordable going forward. I'm just curious your take on just the near-term activity level and just housing activity in general.

Yes. I remain a half-full kind of person. I actually think we come into this year after last year, I think the trough is behind us for sure. We came in this year. I had a little bit of a [indiscernible] little bit earlier that we're running 20% ahead on just overall lock volume. And what we're seeing is we're seeing a lot of interest, but not a whole lot of property to buy. So the issue is on the supply side. And the one thing that I think will happen is if we see rates come back down, let's say, it's 50 basis points from here, I anticipate you'll just see some supply come into the market, which is what we desperately need or to be able to see just the tailwinds of this market. I think it will clearly be a $2 trillion market. I think that's what Mike's signed over at the MBA [indiscernible] but the question is, what will edge just a little bit higher. Mike?

I would just add to that from a capital markets perspective. It feels like the market would welcome that supply if the supply that you're talking about translates into investment market, whether it's loans or securities. But it feels like almost an imbalance right now from a demand standpoint with plenty of capital on the sidelines looking to go to work.

Great. Eric, your last word.

Yes. I would just say it's going to be a continued theme of the supply dynamics, but also affordability. We are just coming off some of the worst affordability levels observed really on record. And so the dynamic of limited inventory, the limited supply faced with the affordability dynamics. I think that continues to constrain originations. But I do think that to Eric's point, we've passed the trough and we're probably on the ascent in where we can get back to some more normalized volume.

Well, I think we'll leave it there. I really appreciate you guys participating and taking the time. Hopefully, we gave the audience an appreciation for the opportunity in front of us and the importance of these partnerships. So thank you very much, gentlemen. Appreciate it. Okay I'm going to stay up here for another minute. Hopefully, that was helpful. That was -- I thought that was a great panel just to sort of get everyone a direct view of just all the opportunity in our residential investor business with significant counter parties. We're going to pivot a little bit to talk in a bit more detail about the CPP announcement from this morning. We do have some CPP folks here who will be here all day to field your questions as needed. But in all seriousness, obviously, we're thrilled with this announcement. It's been many months in the making. I did want to just spend a minute overviewing the transaction [indiscernible] the slide for it. So this is the same slide that Chris had in his deck, I'll spend a minute on this and then bring up some folks to talk a bit more about it. I'd say at altitude, what's most important about this is a couple of things. Number one, it is real affirmation of the relevance of our platform to global investment managers and the products that we create. For someone like CPP to spend the time and commit the amount of capital they have to our platform, I think a firm is not only the strength of the partnership, but also just the real relevance of what we do every day and as Chris said, solving big problems and how important that is in the global ecosystem of investing. In terms of some of the objectives we've talked a lot about the last couple of quarters, number one, we've talked a lot particularly over the past couple of earnings calls about evolving how we deploy capital, moving away from whole asset investing much more towards investing aligned fashions with partners. This is a huge step in that direction. And then secondly, optimizing our secured debt and our secured debt stack and how we think about financing our portfolio, which -- this is also a critical progress in that direction as well. So quickly on the slide behind me, just to summarize, there's a press release and an 8-K out as of this morning, but really, it's a couple-pronged transaction. The first is a $500 million joint venture, which is initially targeted to invest across all of our products within CoreVest, our residential investor platform. It will be 80-20, so similar ratio to our prior one, but broader in terms of the products that we'll be investing in together. In terms of the economics to us, we're retaining all the traditional origination economics and also earning running fee to oversee the assets as well as, of course, economics to more investment in the joint venture. Secondly, we have a $250 million secured facility, which is -- will be secured by unencumbered assets as well as equity in certain of our operating subsidiaries. We'll talk more about this in a few moments. It's very flexible capital. And frankly, it is going to be earmarked to really meet the moment from what we just talked about on our prior panel in terms of the opportunity to really grow our jumbo business. It really is ideal capital to help grow that business. There's some additional alignment provisions as well through some warrants, which we've talked about are in the materials. But overall, this is what we view to be a highly accretive transaction for us. We'll get into more of those specifics in a minute. But I just wanted to tee up the contours in this transaction. What I'm going to do now is invite a couple of folks on the stage. Steve Delaney, who covers us from Citizens JMP and Brooke Carillo, our Chief Financial Officer. I'm going to hand the mic to Steve, who's going to ping Brooke and I with some completely off the cuff, ad hoc, non-preprepared questions. About the joint venture. We're obviously celebrating our 30th year. Steve has covered us for at least 20 of those years. And so we wanted to give him an opportunity to speak on this. Steve has been a really valuable partner of the firm, a great voice for us. And including a couple of years ago when JMP was purchased by Citizens, he's also been very instrumental in helping us deepen some of the touch points within that broader institution. So that's the [indiscernible] I'm going to go sit down and we'll get rolling.

Well, what comes with those 20 years of maybe not just covering Redwood, but the cumulative years is I can't do this without my readers on.

[indiscernible] the questions.

Yes, that's right. Good afternoon, everybody. I am Steve Delaney and my current role as Director of Mortgage and Real Estate Finance Research at Citizens JMP Securities. We have a 4 analyst team. You know some of the folks like Trevor [indiscernible] and it's a big part of what JMP does. I'm thrilled to see so many I look around, I think I'm counting 5 or 6 fellow mortgage analysts. I think some have been doing this as long as I have, and it's great to see you in the room and supporting Redwood. As Dash was talking about this latest development, I think back to last year, when you had your first joint venture with Oaktree Capital Management. And then today, obviously, you took that step even further with this significant partnership and the JV with CPP. Having followed this is my personal view, as you said, for 2 decades, this is a change -- the game of originating loans, securitizing loans using your own capital to hold those subordinate bonds having to finance the warehouse, having to possibly finance some of the bonds. You basically could do as much of that business [indiscernible] you could do as much as that business as your capital allow, right? And now the bankers commented on the scope and the scale of your platform, now you fit into incremental capital, big capital, lot bigger than your capital. So it's just -- it's a really exciting, I think, opportunity and especially with the rate backdrop and the home equity, it's good to be with you guys. Dash, why don't we start with you? Can you just share with everybody how the CPP relationship initially and then the development of this transaction, how that came about?

Sure. Is this -- I think this is strong. Yes. So there's CPP is a name that a number of us have known for quite a while in current seats and prior seats. And so we've candidly talked on and off for years about opportunities to work together. And what appeals to CPP about us is a few things. Number one is alignment, strategic alignment, but also investment approach. Obviously, there's significant sum of capital that they have to invest and reinvest every day. There are over $0.5 trillion of AUM. And it's inherently long horizon capital. And therefore, we're a great partner for them because they make strategic decisions to invest in U.S. housing or other sectors. These are not areas that are going to bounce in and out of, right? These are long-term strategic capital allocations. And that's what's important to us. Obviously, we're a permanent capital vehicle. But to your point, Steve, to me at the moment requires more capital than we have sort of traditional access to, right? And so we've been talking for quite some time well into last year and ultimately arrived at a suite of terms and structure of the -- we feel very mutually accretive not only to drive our CoreVest business through the joint venture, but also through the secured facility really allowing us to step up and grow our broader mortgage banking platform in a very flexible way.

I had a question to ask why joint venture structure and why now? And I think you pretty much covered that [indiscernible] switch over to [indiscernible] CPP investments, obviously, a very well-known entity. From what you knew about Redwood strengths and what you now know about CPP, how do they complement each other within the joint venture?

Yes. I think at altitude, Dave, the CPP brings us certainty of [indiscernible] asset under management figure is hard to comprehend just in terms of its absolute size and scale. And Redwood, Chris touched on this earlier, but we bring [indiscernible] assets, but our ability to underwrite oversee asset manage. There's so much that operationally goes into what we do every day that aligns with CPP's needs. I think, two, we're very mission-focused on both firms. So that's very complementary then on behalf of the, I think it's $22 million or so. You can correct me if I'm wrong, Canadian pensioners and us tethered to our mission as well. So for a 30-year-old public company to meet some -- meet up with someone strategically that as focused on governance, transparency and alignment there. But I think what probably attracted CPP to us is really our broad products we do. I think I can say this more than any of our competitors in terms of just the number of flavors of underlying property types and loan structures that we have between our bridge and term lending businesses and Dash covered this, but it's nice that the joint venture will reflect really what we're doing today on balance sheet.

And Dash, back to you. Last year, you did a venture with Oaktree, and I think that was focused on business-purpose bridge loans, I'm correct? Can you talk about how these 2 -- are you just duplicating Oaktree with CPP? Is there sort of something different in the sauce? How will they kind of complement one another in terms of maybe opening up different products [indiscernible]?

Sure. I think they will complement each other very well -- between. You're right, the Oaktree JV is focused on bridge loans. This is broader in terms of bringing in our fixed rate term business as well. It will allow us to flow those loans into the vehicle and securitize out of that vehicle, likely in partnership with other business we're doing on our balance sheet. So there are some important differences there where because of the suite of products, there are actually opportunities to flow loans into the joint venture and actually do things together off of the JV and then Redwood's balance sheet, which is sort of an interesting difference. And obviously, this transaction is much more multifaceted. There's alternative flexible capital through the -- through the secured facility and some other corporate elements. So we think they fit well together. And our intention is to continue using both and also, of course, continue to use our balance sheet directly to invest in some of these loans. And so just building the flexibility of these structures with trusted partners, getting the experience and the track record with these vehicles is going to be critical. And we think those pieces are going to fit together really well.

Are you leaving the door open to say that there could be a third joint venture sometime over the next several years in terms of this concept of [indiscernible]?

Brooke may have more energy than I do to talk about yet another joint venture, but I'm not. I do think though, Chris' remarks over the past few earnings calls are important, that this is no longer where the puck is heading, the puck is now largely there in terms of how we want to run our businesses and allocate our capital. And over the years, this could take on many forms, but suffice to say, we're thrilled with where we are now.

I think if I can add on to. One thing that Redwood does well that Chris mentioned has just been really an early mover in nascent markets. And so while I too don't have the energy for another BPL joint venture at the moment. We do have a lot of asset classes, particularly in the home equity space that Chris referenced that will need institutional capital to grow in scale. And so there's -- there remains a number of other asset classes within Redwood that could present an opportunity for private capital today or in the future.

No, you're the CFO. So you know we're going to have to ask you about the numbers. This sounds like a grand transaction. Can we talk a little bit about [indiscernible] works, about return on equity? And how would you contrast either the JVs in terms of the returns that Redwood can realize compared to the kind of returns that you would earn on your own balance sheet say, bridge loans or?

Well, this is a perfect segue to our presentation a little bit, but I'll give you a teaser. I think for us at altitude, the name of the game is capital efficiency. And so I think you even mentioned it in your prepared remarks, what we can do and we think we can do with the opportunity in front of us and between our residential consumer and investor businesses, far outpaces what we could do with our own balance sheet. And so with that in mind, our partners' capital really enhances our ROEs by just if we had $100 million of capital today, we could buy x number of loans, maybe less than $1 billion for under BPL, but that's $4 billion under the recently announced joint venture. And so there's incremental fees and performance fees that will add to additive return over what we would get with just $100 million of our own capital. And so I'll walk through the numbers a little bit through my presentation. But I think in aggregate, there's 2 -- of the 2 main components of the partnership, the joint venture is expected to generate about 15 incremental cents of earnings per share per year. That's really an average over the 3 years kind of once we get more ramped. And then on the credit facility, that is potentially -- tomorrow's proceeds could be drawn up to $250 million and deploying that could add another $12 million -- $0.12 or so per year of annual accretion. So call it, $0.25 to $0.27 per year of added earnings on a company whose current dividend of $0.64 per year, it's just really something that we should all take a moment to think about.

I think you should talk about this transaction. You're talking about both NII, net interest income at one level and you're talking about fee income at another level. Companies that have that combination, it's interesting in terms of how we work with the Street and try to value them. It's so easy for people. I think we always start at book value. What's the book value? Is it cheap or rich. But if a company has what we call a REIT over TRS business model, that gives you something more than paying a quarterly dividend. It gives you the ability to retain those after tax TRS earnings and grow book value at the same time. Is this part of the sort of the bigger longer term, like if you had a 5-year plan, you were working with the Board, a focus on more fee income and more TRS earnings?

Yes, absolutely. [indiscernible] at my next presentation. So in the 5-year plan, you'll absolutely see the impact. I think it's something that can't say it enough. This -- we are pretty unique as a mortgage REIT to have this structure with our tactical REIT subsidiary under our REIT umbrella. It does allow us to retain earnings, which is unique and redeploy it into our business over time or dividend back up to the REIT and grow our dividend to shareholders. But being able to scale our volume more significantly, we'll certainly grow our taxable REIT earnings. But also there's new fee streams coming through these partnerships that will also go to our taxable REIT subsidiary. So it's a quality of earnings point I think for us that you'll see both our ability to continue to grow our taxable REIT subsidiaries and thus retained earnings, but also add new few streams that will grow that entity as well.

I need a new page in the quarterly earnings deck for TRS.

Yes. Let it scale, and we sure will.

Dash. Exciting that you just announced this thing this morning and the investment community will have to kind of digest it. But a year from now or so, when you're looking back early 2025. How are you and Chris and the Board and Brooke going to evaluate the success of what you announced this morning?

I think we're going to do it in 2 ways. Obviously, we're going to evaluate it in terms of how efficiently we're able to deploy this capital and how we're able to get the JV up and running and make sure that it fits hand in glove with what we're seeing in the market and our origination footprint and things like that. So that's obviously job one is make a lot of good loans and invest them together. So that's obviously the most important job. But also, in terms of these strategic partnerships, I think it will also come down to other things that we've done together over the past year. This is a significant transaction that we've announced and we're about to embark on, but to borrow Chris' term at the top, this is also an option on each other in terms of Redwood and CPP. There's a much broader ecosystem that we do today in terms of our residential consumer business, which is not initially slated for the joint venture. We believe we're -- we're at the fulcrum of just a super interesting crossroads between how mortgage assets are financed and private capital's role in that. And so I think this is a monumental deal for us to day 1, but I think a lot of the success will be measured by some of the tangents that come off of this. Once you're working together, these other opportunities that [indiscernible] become, frankly, become easier to pounce on together because you've done all the work and you know each other. And that will be a big barometer for us as well.

Well, congratulations on the transaction. And I guess it's our challenge my peers around them, we'll have to take all this and go back, figure out how we're going to change, modify our models and write on it. So thank you for the opportunity that you gave me to host your panel.

Thanks, appreciate it. Appreciate it.

I have a few more slides to cover. Then I promise you're not going to hear from me again until Q&A. I've been up here a while. So Brooke and I are going to cover just some finance slides and just what it all means putting it together for the company. I'm going to start with some key themes for our operating blueprint. And as Chris said, a big premise to this is that it's been a bit of a long winter in the past couple of years, but we are hopefully going to get out of this rate cycle soon, which is going to lift a very important lid off of housing activity and really unlock a lot of significant flexibility and opportunity for us going forward. We've talked about the partnership-based investment approach, improving ROEs. Brooke will elaborate on that a little bit. But one of the things that leads to is significant capital flexibility for us to be able to invest side-by-side 80/20 with partners like CPP, it really allows us, obviously, to move our shareholders' capital further and do more with what we have. It is the existing investment portfolio runs off, that will also free up more capital to invest strategically as well as opportunity going forward and really start to unlock the operating leverage in our operating platforms, which we've seen before. If you look back at 2021, for instance, I think we can do a lot more volume and a lot more top line revenue without moving fixed expenses really much at all. And we've already talked about some of the G&A work that we've done and that we will do going forward to make sure we're running efficiently. But this is sort of -- this slide here is really the virtuous cycle that we're trying to achieve with announcements like today and just again sort of meeting this significant strategic private capital with what we think is a significant opportunity on the asset side. I'll touch briefly on this. But I think the point of this slide is that we're largely doing this already. We talk a lot about asset management and what does it mean. But when you think about foundationally what asset management really is what we already do. We're sourcing loans, we're originating them. We're structuring them. We're across all of these housing products. There's really not a footprint in housing at this point, which we're not relevant in some shape or form. And when you think about the origination, the sourcing, the structuring and pricing. This is really stuff we've been doing for 30 years. It's just in a slightly different fashion and with partners in a slightly different way. We've done a couple of hundred securitizations. We've had hundreds of investors globally invest in our bonds and really it is just another version of that, another way in which to plug private capital into our businesses. Just a couple of points here on just how partnership structures help us. Obviously, we've talked about the ability to drive scale through outside capital. We talked a little bit about the fees as well. One thing I mentioned that I just wanted to reiterate, from an origination perspective, we are keeping -- all of those origination fees as we historically do. We're running a strip, which levers quite well, frankly, into our income statement. When you think about an 80-20 split, net of financing, we're probably 4% to 5% of the total UPB of the portfolio. We're managing [indiscernible] so that -- when you think about a fee strip like that, that type of investment that carries very, very well and levers going forward. Certainty of execution is really, really important. We always strive for that from a risk management perspective. But when you have capital partnerships like this set up, you can frankly work more assertively and you can probably garner more economics from certain situations as you can move more quickly and with more confidence that you have the capital lined up. This is an incredible competitive advantage for us versus others because we have the capital lined up and the operating expertise already in place, and this should allow us, frankly to extract excess and surplus returns from situations because of this flexibility. And then, of course, deepening ability to provide solutions to our borrowers. And CoreVest serves a very, very broad suite of housing investors as Chris mentioned, we do bridge loans, stabilized term loans, et cetera, and capital like this is going to allow us to do larger loans, different types of loans and really meet the moment for what we feel is going to be a unique sourcing funnel over the next year or 2. We talked a little bit about this with Steve, but I wanted to just spend a minute on sort of the nexus between our jumbo business, our residential business and the secured facility that we just procured. As folks know, our residential consumer business in 2021 was deploying $350 million of capital. That was the capital we used to do a record $12 billion of loans in that particular year. Obviously, things slowed down significantly as rates backed up. But as we just talked about, we see a significant opportunity to grow from here. Brooke will cover some of the quarter-to-date progress with locks, but they continue to trend up as the market firms up here. The facility with CPP is going to provide significant flexibility to sort of continue to grow this business in a way that we think is efficient and can be somewhat modular as it relates to how much capital we need to grow. So these were very much aligned in that regard. And from a size perspective, when you think about to our last Investor Day, we sort of talked that we've historically been a 2% to 3% market share in jumbo and we were trying to get higher where we are. We estimate our market share in jumbo right now is about 5% over the last couple of quarters. And the bar graph to the left shows what that could mean from a volume perspective as we continue to grow from here, which is fantastic. And then the chart to the left shows how we can use some of this additional capital to really grow the business without necessarily needing to go through the traditional capital raising channels to grow. So the 2 big takeaways here are there's a big moment to meet. And even if jumbo originations don't grow from here, they were about $170 billion last year. Here's a quick reminder of '21, '22, they were $1 trillion. I don't think we're modeling that necessarily. But there's a lot of room between $166 billion, $1 trillion for us to capture more share. And again, what we've gotten done yesterday with CPP and also in the fourth quarter as well, all the capital we've continued to unlock, we think, positions us extremely well to continue to grow into this business. The last slide I'll touch on before turning it over to Brooke is the residential investor side with CoreVest. This is obviously a much broader and somewhat more fragmented market that covers single-family for rent. There's some multifamily pieces. It's very nuanced how we think about the market opportunity here, given, frankly, some of the crosswinds in commercial broadly and some of the performance differences between single and multifamily. But what we do know is the market is significant. And particularly with banks in many cases, stepping back from commercial. This will also be a huge funnel opportunity for us. And obviously, joint ventures like CPP will be significant in terms of our ability to scale this and grow from here. So I'm about to lose my voice evidently, so this is a good slide to turn it over to Brooke and I will let her take it from here.

As we previewed, we really do believe that the capital partnerships that we have formed and expect to continue to form over the next few years, we'll actually have a meaningful shift in our revenue mix. What you see today is about 60% of our revenue is derived from our investment portfolio. For those of you that don't follow us that closely, we mark essentially all of our assets to market. So that means every quarter, we do -- we -- our shareholders may bear a significant amount of mark-to-market volatility that comes through our GAAP earnings. Even though we are long-term investors, we are [indiscernible] strategy for the portfolio. So fundamentally, when credit is sound and our assets are performing well, that's not always reflected in our GAAP earnings to shareholders if technicals are challenging in the market. However, as we shift our capital that you see through the rightmost chart into more investments in joint ventures and using that scale to drive more mortgage banking activities, we see that the revenue mix over the next 5 years could become closer to 75-25 in favor of mortgage banking and investments and partnerships, contributing the vast majority of our revenue for shareholders. I think that's important for a few reasons. One, the investments in joint ventures don't just consist of net interest income and mortgage banking activities. There are performance and other asset management fees inherent in those that aren't as tethered to market beta. And so those are more predictable. We have better line of sight into incurring those over time and growing them. And then in mortgage banking, Steve asked the great point on what our activities are out of our taxable REIT subsidiaries and on advantages those bring and that implicitly allows us to grow our book value over time. So that revenue mix is a point. And as you see from the right chart, the capital allocation mix, the point isn't that the returns are that different between the businesses. We are seeing kind of mid- to high teens returns across both. I think the point is that we're able to -- traditionally, we would take a loan and put it on our balance sheet and finance it. We're really changing not only our revenue mix, but also our risk profile as we move to a minority of the capital in some of these partnerships, and we transition those loans off balance sheet. I think Steve also made a great point, which I'll repeat here. There's a valuation story underlying all of this. It's a second order effect. It's our job to do this and valuation will follow. But traditionally, the investment portfolio was valued more as a sum of the parts relative for a price relative to book, whereas some of our other business activities like mortgage banking and investments in joint ventures will really come with a multiple on those fee streams and more durable earnings. The next slide is also a continuation of the same themes that looks at what our capital structure looks like today. And I would say we've made some progress. Traditionally, we have had a fairly significant amount of our overall capitalization in the form of convertible debt that looks a bit more balanced today, but also it shows really the leverage of the capital that we'll see from these third-party relationships. If you look at the 5-year vision, not only are we kind of levering our shareholders' equity without being reliant on public markets to do so, but we also are with the transition that allow -- this allows us in our business mix by really pivoting to more of a balance sheet-light and capital-light model or there's kind of knock-on effects for how we finance ourselves like that. The rated debt market will -- should open up and that is modeled here to replace some of our convertible debt today. So we have a small amount of our capital structure in straight unsecured, and that was a new product that we added over the last year, and we look to grow on that and other perpetual capital like the preferred that we issued last year as well. The next slide is an update on our overall liquidity position. We entered this quarter, and we announced this on our last earnings call that we had over $400 million of cash. We've done what we've said we were going to do over the last couple of quarters. We have a lot of ways organically to raise capital that was made possible by being the low leverage that we inherently have in our investment portfolio. And we said we'd do 2 things, which were we would really optimize the financing within the investment portfolio, and we did that in the fourth quarter. We resecuritized our largest third-party asset in the investment portfolio, our reperforming loan portfolio, which allowed us to keep it on balance sheet, which represents the vast majority of that $2.68 a share of discount while also raising capital from it. And then we finance some of our previously unfinanced asset classes. But the main thing we talked about on the last earnings call was that we had this $389 million of unencumbered assets that we were asking you to kind of pro forma into our available liquidity. And the line that we announced with CPP today really does that. It represents a home for a lot of those securities. Those are subordinate tranches that we create from our securitizations across our platform and a number of other asset classes that represent our investment portfolio. So this is day 2, we can go out and draw -- the facility is up to $250 million of capacity, which Dash mentioned. And so pro forma for that, we're sitting at almost $600 million of potential cash, which is over 2x our convertible debt that matures over the next 2 years. We are really well positioned. And by the way, we have partners alongside us in our mortgage banking operations to fund our deployment as we move forward. So we just feel really good about our positioning from the perspective of how we will capitalize this business both today and going forward to meet the moment. You can ask about the dividend, as Chris did on his way in here quite often. I think we wanted to show a walk from three main things that we see in the business today that are drivers of our ability to take where we were in the fourth quarter, which was a cyclically slow quarter for mortgage banking and build on that momentum to really meet the dividend by the end of the year. So this shows a second half of 2024 run rate. The 3 main drivers here are modest growth in our mortgage banking activities driven by really new initiatives that we have for new products, growth that we've seen in the platform that we acquired just over a year ago in the single asset bridge that's an area that we talked about on the earnings call, and we've been seeing growth there. And then also just the bigger moment in the banking sector on the resi side. So that really represents modest growth over what we saw in the fourth quarter and generated last year for mortgage banking. On the capital deployment, we'll get to that in a moment, but that represents the full deployment of the line that we announced today. And then on the G&A side, we will also get there, but that's something that we remain highly focused on. This was the slide that Dash alluded to. This is an update on some of our key operating metrics. All 4 of these boxes really relate to the slide before on our initiatives to drive our bottom line. The first is that we've seen just as of last week, a 20% increase already in what we've aggregated for our resi consumer business quarter-over-quarter and there's weeks left in the quarter. So we're actively out there buying loans today. So hopefully, we'll have an even better update there. The bottom left-hand box is that we've deployed about $140 million of capital to date in the first quarter. I think that's the busiest quarter we've had since 2021 in the portfolio, at least since I've been here. But we -- about $120 million of that or so was just new investments in the portfolio, and the other $20 million was repurchasing debt, both of which have significant tailwinds for our net interest income. I know I've been very focused on that as well as all of you. So there's some tailwinds there. The top right box is key to capital efficiency. We've done $1.2 billion of 3 securitizations. So we're turning our capital every month in the residential business. We've actually experienced a 20% growth quarter-over-quarter and resi without allocating $1 more to the business. So that's going to continue to be a driver of our results this year, but also it speaks to the quality of production that we're aggregating today. We also have been successful in renewing and extending our capacity just to continue to meet the moment in resi. We've added about $750 million of new financing capacity or amended lines. So our warehouse lenders continue to be really constructive in how we finance our business. The last slide because everyone loves to end with expenses is an update on our commitment. We said on the last earnings call that we would try to drive our G&A about 5% to 10% lower. As a reminder, we already had reduced our G&A about 10% last year year-over-year. We continue to look for ways to drive higher variable costs in the business so that it's really tied to our deployment in the businesses, and that's the bottom line, but also just rightsizing cost structures where we remain subscale. And so the bottom 2 graphs are how we think about kind of KPIs that you want -- you can hold us accountable to and our net cost to originate for our business purpose lending business and then our cost per loan for residential despite our volumes having declined pretty significantly over the last couple of years. We've actually been successful as you see over the last year or so trying to drive those to similar levels in line with much better operating environment. And so we are trying to position our businesses for profitable growth. We'll have more to say on this on the first quarter earnings call. But in terms of our commitment, we are expecting to achieve the high end of our cost reduction initiative in the very near term. And with that, I will turn it over to Kait. I think we have a 10-minute break, and you're probably excited because that's [indiscernible]. Be back here at 3:40, 10 minutes. Thank you. [Break]

Hello, everybody. We enjoyed the break. It's nice and long, 10 minutes. My name is Armando Falcon. I'm a member of the Redwood Trust Board. I'm also Chair and CEO of Falcon Capital Advisors, a management consulting firm based in Washington, D.C. Happy to be here to host this panel to talk about government policy and regulation. I think it's very fitting and timely topic. It always is. But as you could tell from some of the early comments of other people up here on the stage, it's almost impossible to have a conversation about the mortgage market without government policy and regulation just come and crashing into the subject, right? The government footprint continues to loom very large. Government regulation is extensive. Subsidies and government policies are always changing and morphing into something else. And in Washington, the range of opinion about the appropriate amount of government policy and regulation is a large range. And so elections matter because depending on who's in office and who's in charge, a different philosophy could take shape over the government footprint and regulation and policies around the mortgage market. And so it's important to stay very well attuned to what's happening in government policy and regulation. If you're active in the mortgage market, that's something Redwood does very adeptly. They've done that very well for many years. Redwood operates very successfully in the -- outside the government footprint and is very well at finding opportunities within that government footprint. And so it's very appropriate for us to have a policy discussion up here with these panelists. I'm going to ask them to introduce themselves, but I'll just tell you we've got Isaac Boltansky, Managing Director and Policy Research at BTIG. Ed DeMarco, President of the Housing Policy Council and Jason Cave, Principal of Piedmont Risk Advisors. Let me just go down this way and have you guys [indiscernible] briefly about yourself.

Great. Well, thank you for the invite. My name is Isaac. I've been at BTIG for a few years, been on the sell side for about 15 years. Before that, I was at the TARP Oversight Panel. That was an oversight body charged with overseeing a $700 billion bailout back when $700 billion was a lot of money. And my job is to try to translate and forecast how DC interacts with markets. That's mostly been depressed in the hell out of people recently because D.C. is a dumpster fire on top of a train wreck. But there are real stories to be told about what we're going to talk about today on the mortgage and bank side. So looking forward to discussion.

I'm Ed DeMarco, I must love dumpster fires because I spent my career in D.C. Currently, I'm the President of the Housing Policy Council. Housing Policy Council is a trade association. It's a small one, only 30-some members, but these are the largest market participants in single-family housing finance ecosystem. So large bank and nonbank lenders and servicers, mortgage insurers, companies and technology companies. Most of my career, 30 years, I spent in the federal government, several different agencies, 10 years of treasury. But my last position was as the Acting Director of the Federal Housing Finance Agency from 2009 to 2014.

Hey, I'm Jason Cave. I spent 30 years in the government, 5 years doing honest work as a bank examiner and then 25 years in Washington, doing well, little of Basel, a little [indiscernible] a little bit of housing and fintech and resolution. And like I said, there were 5 years of honest work there, too. But it's a lot of fun. And I recently retired and I'm failing miserably at it. Don't blame me, blame all those Washington principals, they keep giving me plenty of work. So good to be here today.

All right. So as you could tell, we've got a panel here of a bunch of shrinking violets. I think we can get some opinions out of them about the housing market. So let's get down and dirty about politics and the election. Elections have consequences, right? [indiscernible] is going to design the future of housing market policy and regulation of the mortgage market. So let me just throw out a question there to the panel about the election. Will housing issues, will mortgage market issues play a role in this coming election? I think he's very telling that the President and the State of the Union address mentioned some housing policy issues. So maybe that was a harbinger that, in fact, like most elections. This might be a very big issue in the upcoming presidential election and these [indiscernible] elections. Isaac, do you want to start us off here?

Yes. So look, the simple answer is yes. And anyone who wants to stay in the union saw that housing is going to play a role. I think that you saw a number of different policies. I sort of categorize them as either silly political or concerning political. On the silly political, I mean, my goodness gracious, they're throwing more money at housing. And this is kind of what DC does, right? I mean, they can't control the supply problem. So what they do is they push on the rope for demand. And so the President is proposing a $5,000 tax credit for 2 years for first-time homebuyers. $10,000 credit if you move up in your house, crazy. $5,000 for every 2 years for middle-class homeowners. All of these are nuts. The idea of throwing more fuel on the flame on the demand side. These will not move. These should not concern you. These are nothing more than political. In the concerning political side, and I think the realtor settlement for last Friday really underscores this. Man, the White House is going to keep pushing on junk fees. Their definition. We know that, that isn't the right definition and that there's a fair amount of argument around it, but they will be emboldened to continue going after what they see as elevated costs in the homeownership value chain. You're going to see that on title, and you're going to see that most likely sadly, which will make it so angry, I think, on TRID when they start reopening that. And so I put all that together and highlight to say lots of headlines, not much movement on the legislative side. Worry about the regulatory side because of the junk fees. And then I'll end on just saying this. Man, it's weird. The FHFA and the CFPB, the heads now serve at the pleasure of the President. That means that they are political actors. And it is wild to me that the CFPB waited to release its credit card late fee rule until the state of the union. It's wild to me that the pilot for [indiscernible] program came out the day of the state of the union, and that's something that we need to keep our eyes on because that is deeply concerning from a capital formation standpoint, when the 2 primary regulators are political players completely now. That's all I got.

[indiscernible] guys, go ahead, jump in.

Armando, normally, I would have a lot to say on this, but I think I just want to stand and applaud, right? I mean Isaac nailed it, right? I mean so in terms of the presidential election, housing will be a part of it as part of the rhetoric. It's not really an actual issue that either one is likely to have any progress legislating on. What matters in the presidential outcome is the appointment of regulatory -- the heads of regulatory agencies. As I pointed out, one of the things we're going to see in this cycle, this will be -- really the second cycle in which this becomes really apparent. President comes in, and what had previously been seen and operated as independent federal regulatory agencies are just going to be like any other government agency wherever possible, the agency heads and senior leadership are going to be removed and replaced with the president's appointees. That means the regulatory environment in which financial institutions operate is going to be subject to even more pendulum swinging, and that makes it very hard to make longer-term strategic investment decisions as a business, whether you're a financial institution or some other kind of business, if you were industry is going to be subject to this kind of volatility. So this is really a new wrinkle we have. And with regard to regulations, there are some that Biden administration has been in regulatory overdrive the last 3 years. They're racing right now is on some of these fee issues. And yet the President Biden is reelected, we'll see continued push in that direction and if Donald Trump is elected, then we're going to see a number of these up [indiscernible].

Jason, do you want to offer anything about that? Defend yourself [indiscernible] former regulator.

Well, look, I mean -- well, there's not a whole lot to defend. But on this space, I will say I agree that the quick reaction of the state of the union and then the title pilot, especially given the fact that the -- when I was there, there wasn't a whole lot of interest in that, all of a sudden that somebody dusted off and that's a great thing about FHFA though I got to tell you, unlike the other agencies, you want to do something, you can do it like that. I mean it's pretty cool. I could see why you were acting director or whatever for so long. I mean there's a lot of power in that place. You don't even have to talk to lawyers, you just do it. And it's -- yes, it's pretty cool. And so you get to do what Sandra and they did say, "Okay, we are doing this thing" And so that's a lot of power. And so depending on who's in charge and right, I mean, when I came in, I went in with [indiscernible] I went out with Sandra. I mean, you got some big differences going on there at a place that doesn't have to do a whole lot of APA type thing. So you strap on your seatbelt over at that place. Yes.

Yes. And certainly, with respect to the Fannie and Freddie world, we've all been at the agency except for Isaac, FIRREA and FHFA. And at that time, there's always a lot of emphasis, first and foremost on safety and soundness regulation and there is also a mission aspect to the regulatory activity in addition to just charter compliance, right? I think what -- the impact of what you're going to see here of these heads of these agencies now serving directly at the President is much more of an emphasis on mission and charter activities. Safety and soundness has to always be there, of course, but I think this is going to be a consequence of what's going on. Before I leave the election, let me ask you if you have any other thoughts about specific issues that you think will come up in the election besides the issues like the fees that you mentioned, Isaac.

Well, I would expect out of President Trump discussions about saving suburbia, about zoning kind of in a different direction. He's got a track record of wanting to talk about preserving single-family housing. And so we'll see where it goes. I don't expect there to be a whole lot of discussion about housing out of Donald Trump, but that's -- those are a couple of themes he's hit on in the past.

Let's talk about Basel for a minute. There's a lot to talk about there when it comes to capital regulation. Let's explore the impact. Before we get to the topic of the likelihood that it goes into effect in its current form and the possibility of changes and what those might look like. Let's just assess if the rule in this current form were to go into effect, what would the impact be on the mortgage market and bank's role in the mortgage market. Ed, do you want to start us off?

Well, so if it were to be finalized as proposed, I think a couple of years from now, Chris will be up here with his slide on the share -- the bank, nonbank share and the green box that was banks is just going to be smaller and smaller as that bar chart goes out into the future. We've already done quite a successful job as a regulatory matter in pushing banks out of mortgage servicing and to some degree, out of mortgage lending and the Basel III end game as proposed would continue to do that and would do so in several dimensions, it would do so in terms of the risk weights that are imposed on mortgage assets. That would clearly have an effect. The mortgage servicing assets and what it would do to Tier 3 and Tier 4 banks continue to push the larger banks, cap their ability to service mortgages. And there's a number of other things, the operational risk component of this rule, the way it is essentially a tax on fee income, even if you're originating a loan to sell it, you got to pay the tax. So even if you're not holding it as an asset yourself, there's a meaningful capital charge being introduced here. So there's a lot within this rule right now that heavily penalizes bank activity in mortgage lending. And the problem I mean, with the irony of Basel III end game, which is a horrible name for something that everybody who writes Basel rules or goes or so, there is no end game. My kid thought it was a new Marvel movie. He wanted to go see it. I said, we'll watch the football games, you'll see it there. But the problem with it is the real -- the important Basel III thing was done 10 years ago. After the crisis [indiscernible] we increased the quality and quantity of capital. It was a big deal. We gave banks 80-year transition periods, they all met the rule in the first 3 months. So regulators all felt we got screwed by you bankers. So one thing with that is we did feel that, that was not nice. You told us how bad the rule was going to be and then as soon as we finalized it, each of your CEOs jumped in front of each other saying, we'll be in compliance with it tomorrow, we'll be in compliance yesterday. So it didn't buy a lot of goodwill, but anyhow, the reality is that was the big deal. So we went back to Basel a bunch of years later, to clean things up. And the reality was it was meant to really capture the German and French banks. We had no intention of increase in capital. We had already got it done. So it's the irony of it is when you see that for U.S. banks, it's a 17% increase and those German banks that we spent all that time try to go after, it's going to be 3, something got messed up, so I do think that that's an important bullet point to keep hitting that [indiscernible] nobody thought that, that was what we were sorted, but that's what we were doing, so I do think there needs to be a re-recalibration. A lot of people say this is impossible to fix, this happens every time. There's 5,000 issues that come up and there's 5 issues that the bankers really want and they work it out with their regulators and they come to agreement, there's nothing magical here. I hear about how difficult ops risk is. It's not difficult. There's a 15 number, make it 11. There's this factor, that's -- like these are easy levers if they want to do it. I just wonder [Technical Difficulty] need to do it. You've got the small banks going crazy, doesn't even apply to the small banks. So this does feel different than past ones. And Powell, if I was reading the leaves, and that's all I can do now is listen to it the way everybody else does. I don't have any inside information. But it almost sounded like the liquidity rules, we're going to sort of take a -- if you're doing a horse race, they kind of think I feel like Basel endgame is like the horses I bet on. It was going fast around the corner. I think it's going to slow down and the old liquidity horse is going to take off. And I think that makes a lot of sense because when you think about Silicon Valley, you go through the issues with that bank, liquidity, interest rate risk, unrealized losses, uninsured deposits, have I mentioned anything that Basel III end game was really going after, not really, maybe unrealized losses. So I don't know, it should be interesting. Anyway, that's my take.

Look, I just want to build on something Jason said, which is I've sat in rooms like -- not rooms like this, like really crappy rooms like in Orlando and Tampa at MBA conferences and talked about how rules are going to kill an industry. It's going to kill us. This new rule is absolutely going to stop everything. And then, of course, we find a way to comply and it just moves on. This rule is different. This is an actually bad rule. There are actual mistakes here, and we've got to keep in mind what happened. Vice Chair bar saw an opportunity with the bank crisis of last year to push this rule through as quickly as possible before a potential Republican administration in order to seize on the political will from SVB and the crisis. That's why there are so many mistakes. This was rushed, right? And so I think we have to keep in mind, there were obviously things in there that I think they're always going to change. Like I think the green energy treatment was a bit of a red herring. [indiscernible] 100%, will take it back down, the normal regulatory 2-step. But my God, there's some real, real mistakes here that I think need to be changed and will be changed. I've never seen the banking industry this activated. But here's my message to you. And the one thing I want to leave you with, Basel is going to change. We know that. And we can spend all day talking about whether it's going to be reproposed or finalized as it is, but I just want to say this dynamic on banks is going to continue no matter what. Everyone thought the Vice Chair [indiscernible] Republican Vice Chair was going to [indiscernible] it would lead to a financial [indiscernible]. Obviously, none of that happened. Capital stayed about the same [Technical Difficulty] just go up, requirements will continue to go up or stay the same, they are not going bad, they are never going bad, and so whether it's this rule or the stress test that happen annually, banks will continue to have this problem, continue to have this regulatory pressure and continue to meet other avenues and other solutions, which is what Chris talked about this earlier today. And real -- and not that I'm defending or going after any particular persons or administrations because that's not good for business. But everybody talks about the tailoring as the crime on [indiscernible] but the other reality is the unrealized gain and loss issue that was done in Basel III. That had nothing to do with tailoring and that was a decision the regulators, we turned off that filter for the non-advanced approach banks. And unfortunately, Silicon Valley was just the next one down the list, well, these things happen. That had nothing to do with tailoring. That was something we did, but it's also one of the things to play the other side for everybody is that was something the industry fought against allowing losses to go through capital. I'm not saying it was right or wrong, but again, that was a notice and comment and it was part of that rule. These things get all conflated although that was tailoring the like or whatever. And I think it's not always fair the way that's done. But you do have to be careful because I think a lot of regulators are now taking it on the chin for what the industry really was asking for. And so the other thing sometimes is if you -- regulators, it's the same folks doing that, and they kind of remember how that goes. So it's a mixed bag on that one. Should we have made some of those losses go through capital for maybe everybody above $100 billion? Well, it would have maybe helped with Silicon Valley. So those are a lot of the issues that folks are thinking about right now, too. So it's not an easy job. They do get paid well, but it's not an easy job.

So I agree, Jason. But I want to look back to one of the things Isaac said and take it back to the start of this conversation because this really is, in some ways, an embarrassment what was produced by the Federal Reserve and the FDIC. I mean you just -- you expect better of these organizations and [indiscernible] OCC, yes, and as you expect better of all 3 of them. And yet, as Isaac pointed out, I mean, sort of the principle that was pushing this through seizing on an opportunity and you look at the votes, the fact that even proposing this had negative votes on both boards is an indicator of what we talked about at the start with FHFA and CFPB that you've got regulatory agencies now that are with governance that is more associated with or affiliated with the administration in power and operating to that end in a manner in which we're just not accustomed to seeing. And once you got put on the Federal Reserve Board or the FDIC Board, if you were on the Federal Reserve Board, you're there to make sure inflation was controlled and the dual mandate of employment. But you did that with that's what I'm here for. If you're at the FDIC, you're there about the safety and soundness of the banking industry. And now we see politics entering into these processes in ways that were familiar with and how this continues to play out is really going to be an interesting and perhaps troublesome issue for us going forward.

The real crime, is we have this thing called [indiscernible] and Ed will know this from -- when we came back and delivered Basel III, we were all very proud of the banking agencies. And Ed said, going to drive all the banks out of servicing, and I'm going to have to deal with all these nonbanks and I'm the head of FHFA. I'm not too jazzed about that, and we told them too bad. First off, we don't think it's going to happen. Well, Ed was right. We were wrong. So sorry about that, Ed. But the problem is it's not gotten any better because when I was at FHFA, FHFA people were fuming when they came back, there was very little discussion about Basel III impact on mortgage with FHFA. And so I'm here to tell you, Sandra, they were shocked that was a bum rush for everybody and Fed or whatever says this is what we're going to do. So the other issue is we have these bodies here and they're not being used. They're not being used to coordinate these policies. So the FHFA should be key in any discussion on these things, just like SEC and the like. So we're not using these bodies that were created, which is a big deal. And there you go.

So the regulators, the proposed Basel III do seem like they're on the ropes politically and they're feeling the pressure to make changes. And it's unusual for a regulator, especially safety and silence regulator to just capitulate, you and I have been under that kind of pressure. And so what's likely to happen with this rule then? Do you agree, first of all? Maybe I'm wrong here. I can't see them just pulling it and trashing it. Could they come out with a different version of this rule? And what do you think the possible changes are that will end up getting made to this rule based on the comment letters and all the pressures that are getting put on. What are the odds and what are the possibilities?

Well, I think a number of the principals have already indicated that they expect meaningful change. Mortgage has gotten an outsized amount of attention in this because of the broad impact of this rule on mortgage, and that is comments, not just from industry, but certainly from housing advocates, Democratic members of Congress saying, "Holy cow, what have you done to?" What are you doing to the mortgage market here? So I think we're going to see changes, Jason's point earlier about, look, I mean, some of this stuff can be addressed by changing leverage. They got a build on op risk, right? So presumably, they capped the [indiscernible] charge on interest income, you presumably could do the same thing with fee income. It's uncapped now, which makes it crazy, but it depends upon where this lands. I mean do they really get rid of it and restructure it? Or do they change where a bunch of dial settings are and say we don't need to repropose, but there's going to be change. And I think this time around Chairman Powell's going to want to do everything we can to get this as close to as unanimous and [indiscernible].

So I'll just say this. I think, obviously, the Fed is where we should be watching. And I'm struck by something that Ed said and it's something that I think we all recognize. 10 years ago, no one talked about the political affiliation of a Fed Board governor. We do now, right? And I think there's something we said about that in so much as I think that Powell is going to try to work to get Kugler, to get [indiscernible] to get Jefferson. That's important. He's definitely, I think going to have 2 no-votes on this no matter what, and so I think that they're going to work towards that. There's a bit of a trap in all of this though. If you change this rule too much and try to finalize it, that creates another [indiscernible] and so I really think that they are stuck. Most of my contacts think that they're going to try to push it through this year. There is any burgeoning thought process that there'll be a reproposal. I think my point to clients is twofold. Number one, if they do push it through this year, we're going to have litigation, which is incredibly meaningful and takes time in and of its own right. And number 2 is just [indiscernible] what happened before is if there's litigation, I think that the stress tests are going to become tougher and tougher and tougher, and you're going to have more badgering from the regulatory state, more regulation by enforcement and those things. So I think you've got to keep that in mind from a bank perspective.

It's an 80-20. They don't even need this rule. It's done -- most of the stuff that mattered is done. This is 80-20, which Washington is amazingly good at, right? So we'll spend all this time and shits on these little cleanup things when the reality was that the thing in 2013, that was the main dealer or whatever. But you fix unrealized gains and losses, you do a few other things, and you're done if you want to be. That's what I would do. I wouldn't [indiscernible] anyhow.

Do you think there's a chance that the status quo is where we end up here on bank capital regulations relative to mortgages?

Do you mean the proposal or [indiscernible].

Current rate, not any changes at all. But my point is, if we don't end up with just the status quo, then it means that there's some change and then some movement in the market maybe to the benefit of nonbank originators and investors. If there's some movement as a result of this regulation, if it's water down even, could that be the scenario that we see.

Let me just say this. even once the market came to the conclusion that Basel III end game is going to be changed, I still got the same number of questions about bank CRT and banks offloading risk. That has -- nothing has changed from that. The dynamic is still there. And plus there's just excitement about that because of the Fed's comment that came out, I think, last September, there's a statement on that, and we're starting to see it. So I really don't think that, that changes that [indiscernible].

Right. I don't -- to that point, right? I don't -- even if Basel III was totally mothballed. And even if banks dodge whatever this liquidity rule is that comes out, I don't see like banks portfolioing long-term mortgages all of a sudden because the examiners are coming back in. They finally found out what interest rate risk was supposed to be done, how are you supposed to manage it. We hadn't done that in 20 years and now they're doing that again. And so I think even without those, banks are going to be in for a continued route awakening when examiners explain that they actually want banks' balance sheets to be closer matched up or whatever. So I think that there's still going to be those issues. So there's going to be still a big need for Chris and everybody at Redwood Trust, even if Basel II and those other things don't come to fruition, I think.

Well, that's the point that I was trying to make, and thank you very much, Jason. Here you go. Let's shift gears for a minute to single-family rental. Do you all have any thoughts about whether or not -- where will that -- will that keep growing? At what point does it peak? Where do we end up with on single-family rental? I stumped up, yes, but we got a few more minutes here.

Let me just -- let me just a little bit out of my swim lane, but I'll just make an observation that I think part of this is going to be driven by demographics. And we've got -- we continue to have a backlog of households that are ready to get into homeownership and can't. And so as supply becomes available, these folks are getting them in age. They want to be homeowners and when they can, they will, but single-family rental is an ongoing proposition, I think, remains a solid piece of the market, but whether it keeps growing from here, a little less.

So we have a few more minutes.

I'm actually going to jump in there for a second, too. I just want to say that there's one theme that I've seen since [indiscernible] before, and it's a DC tends to approach the mortgage industry with roses in one hand and a knife in another hand. And with SFR, I think that's a good example here. But they're obviously helping with the supply crisis. They're obviously helping with affordability. But you should keep in mind that the headlines are going to continue here, right? As there aren't broader solutions for supply. There aren't broader solutions to build that I think that there are boogeymen that are going to get beat up, not just at the federal level, but also at the state level. 40 of the states have trifectas in their state government. So you're going to see more and more state level action on that just to be aware of.

What else is on horizon as far as government policy and regulation in the mortgage market?

Getting the GSEs out of conservatorship.

That's not going to happen. That's the internal question, right? Every anniversary comes around and people say, "Oh my god" they're still in conservatorship.

I don't know though. Look, I grew up believing that the 6% commission for real estate brokers [indiscernible] around that would never be gross. In D.C., things are impossible until they're inevitable. So I think it's definitely something to keep in mind that if there is a Republican, there will be an attempt, and we need to be cognizant that there will be an attempt, good reason to be bearish. I agree, but there will be an attempt that you need to be cognizant of.

Yes, I think that's fair. Let me -- more near time than that. There's still a lot going on in the regulatory realm. We briefly touched on a few of the points. But so title insurance is in play with the FHFA pilot with the CFPB blog about title insurance is one of the fees that it's going to go after. We're expecting something from CFPB in the next few months on title. We expect CFPB is going to be reopening RESPA. This is a pretty big room. And if they go in and do this, that would be a big deal. If it is narrow focus, tailored, then could be a good thing. But there's a lot going on there. FHFA continues to have a very active agenda of things and I expect items to continue to pour out of FHFA. And then on the government side, we haven't talked about the government insurance programs at all here. One thing is until certain things get fixed with FHA and we're not going to see the banks back in that business, no matter what, which is really it's just a shame. This should be the government's flagship program for at the margin, creating homeownership opportunities and banks should be vibrant participants in the that, but under the terms of this arrangement now, it's just not an attractive proposition for them. And I don't see that being addressed in the near term. In the near term, what's going on with the government insurance program has to do with default servicing. We've got the FHA, now has their payment supplement, partial claim program out there. VA is still trying to figure out what to do with getting folks out of [indiscernible] what the takeout proposition is going to be there. They removed their key programs 16 months ago, and we're still waiting for the replacement to come. So there's the activity there going on with FHA and VA.

Jason, any last word?

No. Wait and see. But yes, I agree with that, Jeff. I mean, why would a bank jump into the middle of some of those programs there. It's just -- it's not a good buyer. So -- yes. yes, we'll see.

Well, everyone, thanks. That's our show for today. Please be sure to tune in next week. All right. Thank you.

Hi, everyone. So this is the last panel of the day, and I personally am honored to get to moderate this conversation, the opportunity to build a more accessible housing market. The conversation today has largely focused on the changing landscape in housing finance and the role that private capital providers like Redwood can play in that evolution. When we think about the landscape today, you should have mortgage rates still very high. Your housing availability is still quite low and as Chris mentioned earlier in the conversation, over 80% of homeowners boast a sub-4.5% mortgage rates. So there's no incentive anytime soon for that contingency to move. And so I think the takeaway from those stats is that housing accessibility really does remain a challenge and one that demands both innovation and attention. So to discuss this topic, one that is near and dear to Redwood's mission. Chris touched on this earlier, but the panel today is going to discuss that topic. And I'm joined by 3 very impressive leaders when it comes to tackling housing accessibility. We have Faith Schwartz, who is CEO and Founder of Housing Finance Strategies. And as Chris mentioned, Faith boasts a long track record and really helping to shape housing policy, both on the public and private side. We have Carlene Graham, who is the Chief Operating Officer of Redwood Residential, and Carlene's played a really impactful role in the rollout of Redwood's home equity products. And then Chrissi Johnson and Chrissi is CEO and Founder of Alinement. And Chrissi has deep experience in really advocating for Alinement on topics of home equity, on housing finance and real estate. And so with that, we're going to kick it off with some questions and Faith, I'll begin with you.

I think the first question we'll start with is why is housing accessibility such a hot topic right now?

Well, we just heard that last panel. Didn't we? we heard a lot about the current policies in Washington and the high interest rates, the 525 basis point, Fed funds rate hike. And of course, everything I'll say is not news to this crowd. We have high rates, low supply, people that could have afforded something maybe 2 and 3 years ago, can't do so now in a 6% to 7% rate market. The millennials don't have the down payment [indiscernible] ever increasing prices of housing. And so that gets out of reach. And I would -- I'd argue maybe a little bit with the last panel on this one. The cost to originate loans is too high, $12,000 alone. That is an easy access to credit barrier for homeownership. So title insurance, [indiscernible] appraisals. There's lots that should be looked at the digital [indiscernible] would help homeowners access housing and affordability. So those are just a few of the reasons. But I'd see down-payment assistance and just the inability to save, we've had a high inflation student loans. So the millennials, unlike us baby boomers have a little harder time preparing themselves for getting into the market. And of course, we heard today how Redwood serves all cycles of shelter, rental, home ownership and of course, the HEI programs.

And I think you've touched on this a little bit, but what do you think some of the gaps in addressing housing accessibility are?

So this stage in my career, I've really focused a lot on efficiency, technology, streamlining a very inefficient marketplace. It's just stunning how bad we are at progress in the mortgage business. And I think I might be in this market a little longer than most of you. And it's not really made a lot of progress. So that is one of the angles is to get streamlined and make it simpler and accessible. And it pivots to one thing about the HEI programs that we heard about today. In the purchase market, that I have 3 kids in their 20s. They have good job. They're in the pricey cities, Denver, San Diego and New York. And saving for a down-payment in those markets will be years. So parents can help. Baby boomer parents are already helping, but if you think about the people that need home ownership, shared equity programs in the purchase market is a big innovation. So I think getting back to innovation and housing through whether it's cash-outs in a market, you don't want to refinance your first loan at 3%. But you might want to access that well-earned equity of $32 trillion and have an easy way to access it and start planning on your own financial health, and that's a new innovation. And we have not done a lot of that. So I would say innovation, streamlining and getting this market to pivot a little bit.

Chrissi, this next question is for you. We talked a lot about the private and public sector today and your company, Alinement. It's really focused on the intersection of commerce and social change when it comes to housing policy. And so I was wondering if you could talk a little bit about what it is that the private sector is doing and perhaps what it is that the public sector kind of hasn't done just yet?

Yes. And Carlene is going to get into this in a little bit, so I won't dive too deeply in this, but I think everybody knows about the most commonly known HEI product, I guess out there in the public sector is the California [indiscernible] huge success with that so much that it was a blip and it was gone. And they are revisiting ways to make it more sustainable. But obviously, there is a need and the desire for it, and we're figuring ways to do it at the state level. I know there's another program actually in Ohio that Ohio state legislatures are trying to take that model and replicate it because they did see such success. However, there is a real opportunity for the private sector to get involved here to meet the need of the liquidity need, honestly, and the capital need that is required for these type of co-investments, these type of shared equity investments alongside states as well. So I know [indiscernible] has been having conversations with different companies on that type of opportunity, what that -- how that may pan out will be interesting, but I feel like there's a great one there. I also think there are a couple of cool things happening in the nonprofit sector. I thought of one specifically was the Deerfield Fund for Black Wealth. And they created this honestly as it was structured as a private equity proof of concept for how this organizations like Deerfield nonprofits like Deerfield across the country would like to make their program-related investments there, PRIs. So and that was directly creating wealth for Black communities. There is also something happening in the U.K. that I think we can look to. So again, there's not a whole lot happening at the federal level, government level yet beyond the opportunity looking at equity instead of debt. But in the U.K., there are some models happening as well. It's called a [indiscernible] it's a government program to help first-time homebuyers, get property with just a 5% deposit. You borrow the rest from a mortgage and on a repayment basis. And they're seeing a lot of success for that. They have changed it for people who live in London, outside of London. But those are some prime examples, I think, where we can see the public-private opportunity coming together.

Carlene, we're going to switch this over [indiscernible] for a second. It's our 30th anniversary and our jumbo business has obviously been a really critical part of that over the past 30 years, but I don't think when people think jumbo, they necessarily think housing accessibility. So I was wondering if you could elaborate on what it is that Redwood has been doing over the last number of years as it relates to really supporting housing accessibility?

Sure. Well, interesting enough, about 10% to 15% of our production is to first-time homebuyers. At Redwood, we are always looking at innovative ways to advance housing accessibility. One of the ways that we advance that is by providing liquidity to underserved markets that the government does not serve well. Our CoreVest platform provides financing in support of workforce and affordable housing. Our venture investing platform, Redwood Horizons, we seek to invest in early-stage fintech and [indiscernible] companies that have a direct nexus to Redwood's business strategies. A number of those investments are also made in support of housing accessibility and homeownership. One of the key areas that we've been focused on over the last few years is home equity investments or HEI. We've been investing in that product for about 5 years, both as a purchaser and as an opco investor. During that time, we've secured the first dedicated HEI financing line. We have also participated and cosponsored to HEI securitizations. And we've really emerged at [indiscernible] in structuring the product to be able to align both investors and homeowners alike. Now we're going to leverage that platform to begin to originate ourselves. We talked earlier about the California Dream For All Act. HEI is most impactful to housing accessibility when it's applied as a down-payment contribution product. The California Dream For All Act, $500 million was set aside from State of California budget to provide up to a 20% down-payment for first-time homebuyers. Those down-payment contributions are not to be paid back until the home sales based on the equity in the home. I think that, that program did exceptionally well because there's a need for it. The way that we traditionally try to attack housing accessibility is through high LTV mortgage products that carry a higher interest rate, they carry less equity cushion. Therefore, they lead to higher default rates. So we think that HEI can be very impactful and housing accessibility in that space.

Chrissi, I think Carlene might have just tee this one up for you. But home equity, let's stick with that topic for a second. Hot topic right now. Why do you think home equity has good opportunity here to really help support what we're trying to achieve when it comes to housing accessibility?

If you were listening to the panel 2 times ago, not home equity at supply. But you're not going to be able to access that supply if you can't think about breaking down some of the barriers to entry around equity and I think HEI and especially around the world of down-payment assistance quite frankly, does that. I think as a down-payment, HEI has extended the consumers down-payment and so that not only does it reduce the rate for that consumer and their loan, but it shrinks the size of the loan, which also drastically reduces the down payment. . Secondly, these benefits appreciably increase the consumers buying power and enable the consumers to own when it is otherwise inaccessible. So I think we can all agree that when it is responsibly done and underwritten correctly that some homeownership is better than none. And then additionally, HEIs align the investor interest with the homes and communities because they have a stake in home value. So you see a lot of aligned interest when that comes to renovations, being a part of the community improvements, all that type of stuff. And I think these are real great -- all these different programs we talk about are examples of success because these funds then when you allow people to get in their homes, build equity that allows the funds to be re-invested in the homeownership cycle. So people can build their equity who have otherwise been locked out of the system in the past due to either the current economic environment or historic red lining, which is still very relevant today for communities of color and especially black communities. And being able to build that equity so people can reinvest in mortgages and other HEI products and other financing products is good for consumers and good for the economy.

On the question of HEI [indiscernible] I'll send back to you. We're talking a lot about down-payment assistance. But could you educate us a little bit more on the other use cases for HEI?

Sure. So on the down-payment system, that's a relatively newer facet of HEI within the purchase market. In fact, the government, they'll give some liquidity to a first lien if a nonprofit is on the other side of that with shared equity investment. So we can see a world where we'll see scaling happen much better if there is more ability to partner with someone like Redwood on the other side of that transaction, and that's going to be an important breakthrough for that market. Think of if you want a few examples, first-time home buyer or even a move-up buyer in the purchase market. Coming up with that 20% down, if you put 5% down, and remember the cost of housing is much higher now, right? Let's say, it's a $500,000 home, 20% down is $100,000. If you and the shared equity partner, put that down, then you have a $400,000 mortgage at rates. And as a first-time homebuyer, you were never going to get to that $100,000 down payment for many years. So it kind of speeds up the cycle. In 2022, the average first-time homebuyer was 36 years old. It's probably higher in this past year. And the traditional general age is about 31. So we're seeing household formation delayed. We're seeing inability for people to get access or bid at the table against a baby boomer, who's downsizing and wants that same entry-level house who has a lot of wealth. So a lot of challenges for the first-time homebuyer. Down payment assistance mortgages will help to make it affordable, let the homebuyer build their credit even better and have ownership wealth building at an earlier age and be part of the cycle. So move-up buyer would be someone who might want to move across town. I'm from Washington, D.C. So I had a lot of fun watching that last [ panel ]. But people might want to move from Southeast or Southwest to Northwest D.C. to get into a better high school in a better school for their kids, just the way it works. And so that same house that they live in and maybe have a mortgage in might be worth $200,000 more in another section of the city. In order for them to move across the city, they might want to use a shared equity down payment assistance program so they can upscale their home ownership, their kids' school and participate in a better area -- a safer area perhaps. And -- but really, it's about schooling and that example I was giving you, that would be another example where a shared equity investment might make a lot of sense. And remember, the exit is a refinance or a sale of the home, 30 years later, 6 years later, maybe optimizing what the best time to exit the shared equity is if there's been good appreciation. On a last point of HEIs, tapping your equity is a right that really most people should have. And that $32 trillion really does stand out. So if you think about people who have that equity but have a cash flow problem, let's say, they're 58 years old and they want to move to Texas or Florida or somewhere in a warmer climate and they want to move in 5 years. They're not getting their social security. They're kind of cash flow poor. And they have $1 million in their home, and they want to get -- be able to tap a couple of hundred thousand dollars. They can do that and sell that house in 5 years. Shared equity, HEI programs, will let them do that. So really all these life cycles of lending, it has its application. My only caveat is you have to educate your borrower, ruthlessly educate them, be transparent. So they're really educated on what they're getting into. But this is a product that many people can use in a good way, I think.

And you also want to make sure that you have homeowner alignment because you want to make sure when the investor wins, the homeowner wins as well. So it's really important that the HEI is structured with that in mind. And I think we've done that well with our Aspire program. And to your point, just transparency, transparency to the consumer constantly educating them throughout the life of the HEI is important.

And one thing that I think you just touched on a little bit, Faith, too, but we've been buying HEI at Redwood for the last number of years. And if you look at the data for what the use cases have been for why homeowners are taking out HEI, a lot of it is to pay down debt and really improve their financial conditions. And so that, in addition to the other opportunities that we've talked about here, has really been a big use case for HEI. So I guess, Carlene, a question for you. Can you talk a little bit about why HEI versus maybe some alternative in today's market and also hit on how Redwood HEI product differs from others who are originating it?

Sure. Well, I'll take that question in general on our home equity products. So recently, we launched a closed-end second program. Most closed-end second programs are structured with shorter durations and can carry a balloon payment. Our closed-end second program is structured to include longer durations, which leads to a much more budget-friendly payment option for the consumer. Now to the extent that the consumer can't or won't support that monthly payment associated with the closed-end second, we've also made our Aspire HEI program available to our mortgage lending network. And we think that's very powerful because the loan officer has 2 different, completely different approaches to helping the homeowner. It really gives them just more tools in their toolbox to be able to help the homeowner tap that equity. The -- with respect to our HEI product, we really have structured it with homeowner alignment. So our key principal design there is to make sure that the homeowner and the investor is aligned. So when the property goes up in value, both the homeowner and the investor wins. So I think that's just a really crucial point. And to do that, we've made sure that in our Aspire HEI program that we avoid cases where the investor makes money and the homeowner does not. And I think that's important. I think that there's -- as we've heard all day to day, there's a lot of trapped equity. There's a lot of folks sitting on 2.5%, 3% mortgage rates, and they need to get into that equity. They need to finance or remodels, send a kid to school, pay for wedding. I think HEI, combined with and/or a closed-end second program, can be very impactful. And I think that's been our focus for the last several months.

Yes. And I can say just putting the Investor Relations hat back on for a second and a lot of the conversations we've had with investors around HEI, the big topic that's come up is alignment. I think that's really important. As everyone educates themselves on the product and as kind of the acceptance of this product becomes more widespread. Alignment is actually the name of Chrissi's company so this is an easy one. But when you think about the success for home equity products and HEI, can you talk a little bit about the relevance of alignment, how that really will help drive forward the acceptance of HEI in the broader market?

Yes. I live in Brooklyn, but like Faith, spent most of my career in Washington D.C., and a big chunk of that was at the [ big beds ], CFPB. And so as much as we -- it is so important to have consumer transparency, financial education, all of those very valuable consumer protection measures, I would be hyper aware of the fact that this is -- there's not a way of regulating equity right now at the federal government level, at least not in this form, so I would be aware of that because this reminds me that actually last time I was on stage here was, I think, about 6 years ago, and we were talking about the qualified mortgage rule. And the reason I bring up the regulation thing is because there was a shift then. And regardless of what side you were on and as far as the result there and the replacement of the patch, there was an incredible movement, which was finding alignment between the consumer advocates who represent the consumer interest and the regulators and the industry who was providing -- who were providing the mortgages, who were providing the insurance. Everybody came together to come up with the solution. I think there's a real opportunity here to find alignment with groups like the consumer advocates around some of their incredibly valid concerns. And I think Aspire is one of them who could really lead the way. And for example, one of the big consumer advocate concerns to protect consumers is that some -- not all HEI products are created equal. There are some that don't provide caps like Aspire does for investors, and that's important to protecting the consumer interest who, even if you educate them and you're transparent, they might not know what they're getting themselves into here, and you got to sometimes protect them from themselves. So as far as finding alignment, I mean, Carlene, I forget how you said it, but you said it so well that it is in the interest of the investor that there is also consumed -- there is also consumer success. And the best avenue to finding some of the protections that are necessary for the consumer success, I think, is finding alignment with the consumer advocates who have some of those concerns out there.

I would just add to Chrissi's comments, one beautiful thing about Redwood is that they have a reputation for excellence. And so aligning the consumer and their investors and lending partners is of the utmost importance. So I think they've designed programs to be aligned with how it should happen. And not everyone does that. And I've always thought, just keep that consumer foremost in the front of your any product you're putting out there because if you have unhappy consumers, you have a bad product. It's not going to work well. So I think that's going to be kind of the name of the game going forward.

Well, that kind of wraps up all of our questions. I think this is a topic that we're going to see unfold over the next year. And a year from now, we'll probably have a lot more to say. And the conversation will continue to evolve. So thank you all of you for joining today for this panel.

Thanks.

So I'm going to stay up here and help moderate the Q&A with Chris, Dash and Brooke. We are going to have mics on either side of the room. I'm not sure who's going to be where just yet. But if you have a question, and you want to raise your hand, someone will come over and give you a mic. All right. So we're going to start with Don first, and then Bose, we'll go to you next. You can just shout if you want.

[indiscernible]

The question was, for anyone who couldn't hear, the accretion number that I gave for the CPP joint venture and term facility earlier, was it net of everything essentially? And how long do we think it would take to have the $0.25 to $0.27 as run rate. To answer the second question first, we really -- this is a 3-year average essentially over the investment period of the joint venture. We -- so somewhat will be dependent on the pace of deployment. But we expect that, that could be closer to run rate by the first full year with the -- as we approach full deployment. One thing I would say, the only thing that wasn't netted in there that, as Dash mentioned, as part of the transaction, was the warrants, and I can spend a quick minute on how we think about it. There's about $0.01 of book value dilution from the initial tranche of warrants. There's 2 tranches of warrants that Dash outlined, 1.5% of shares outstanding that are the best upfront. Importantly, it's out of 25, both tranches are 25% premium, so they're struck well out of the money. If you think about how that relates to a convertible bond, for instance, as many of our shareholders are very familiar with since we have a lot in our capital structure. And that conversion premium tends to be somewhere in the 10% to 15% range for our products traditionally. So at almost a 2% -- or 2x the conversion premium there. So struck out of the money, but we both and CPP fully expect that we will more than recover just given where our current valuation is, and Chris nicely walked through the various components of our valuation build over time. And then really, I think the last part is just kind of effective warrant coverage is the $750 million of capital, $250 million of which could be drawn in the very near term. So the full potential stack of warrants would be $50 million, $35 million of which really vests upon some performance milestones for the joint venture. So all the offsets there on the significant earnings accretion would be coming into play if that second tranche was [ invested ]. So if you think about last comparison to a convertible bond, if we did a $250 million convert, which would be very sizable relative to traditional kind of conversion issuance metrics, 100% of that could be convertible into shares outstanding, whereas the full potential, either based on the term facility or the total capital alone could be 7% of the transaction size. So some metrics there just to consider.

I'm going to go to Bose on the back next, please.

How should we think about the capital structure going forward? Will some of the funding facility be used to replace some of the convert coming up this year and going forward?

Yes. Circling back to the slide earlier, I wish I had a way to flash it up. But I think in general, we view there to be a much better balance between kind of public and private capital strategies. So our -- the book value that we showed over the next couple of years really grew pretty organically. The only common that was assumed for growth was really reconvene some of the discount per share that Dash and Chris mentioned earlier as well as our ability to generate our retained earnings to our taxable REIT subsidiary. So our traditional ROEs in our mortgage banking businesses have been in the high teens, which has been also traditionally well in excess of Redwood's dividend yield on book. So that affords an opportunity to grow capital organically. And then my only other couple of points on the capital structure, we're just that we will always look for the best relative value for shareholders across unsecured or preferred capital. I think we do think there's a lot of value, especially today and more perpetual capital in the overall capital structure, both coming from preferreds and also third-party capital.

We'll do a show of hands again, just so I can get a read of the room. Why don't we do Kyle first, and then we'll do Rick next.

Kyle Joseph with Jefferies. I wish I had a magic wand to pull up the slide, too. But going back to the slide on crisis and then ultimately kind of capital formation and new entrants to the market. In terms of the regional banking crisis and impact on jumbo, obviously, there's Redwood Trust. But what other operators do you see? Do you see other sources of capital? And who are kind of the new entrants that would be on that slide if we're here 5 years from now?

I'll take it. There it is. My strong sense is if we're right about the need for private capital to partner with banks, most of the names in 5 years, don't get exists because what typically happens is you see capital flood the zone, and we saw on the back of the GFC, all of these firms were created for this opportunity. So I think the capital is there probably to see dedicated vehicles that will eventually compete. But what we're trying to do is build a moat around the strategy, and we are making a bet. It's a calculated bet. If we're right, I think we've got a tremendous lead. And you've sort of seen nonbank participants in the mortgage market that do it right. You've seen the rise of the Rockets and others. So there's always the potential to have a significant transformation, and that's going to be a big part strategy over the next few years.

We'll do Rick and then we'll do Doug.

You guys have provided a quarter-to-date update in terms of jumbo volume. Volumes are strong when you provide sort of context for the year showing flat for I'm going to refer to it as BPL and pretty good growth in the conduit in the jumbo business. It feels like you're on track to deliver that given the volume. What's the implied market share on the jumbo side? You're talking about 5% now. But the other question is, you provided a volume number fourth quarter gain on sale or margin was strong in that business above your sort of target range. I'm curious, given rate volatility, what you're seeing in terms of margin on that business in the first quarter given the strong volumes.

I can take that, Rick. From a market share perspective, we're not assuming in the guidance any sort of huge growth over the 5%, but we feel like there's definite alpha and upside to that number as we head into the -- towards the middle of the year. We're starting to see some interesting dynamics in terms of share between banks and nonbanks. As you know, we remain really well penetrated with the IMBs. Those remain really important partners for us. But in many ways, we're just getting started with the effort with depositories. We're locking loans actively with 70 banks, but it really is still early innings in terms of standing those relationships up and we're, in many ways, still bearing the fruit of that. Quarter-to-date, our volumes are up 20% and our shift is actually a little bit more towards IMBs, quarter-to-date than banks, which we're fine with because we're recognizing that we're following the share and there's substantial room to the ceiling with depository. So we're not baking into assumptions a ton more than our 5% share, but I think that we're in touch with 60% of market share of jumbo. And so there's just a lot of wiggle room in there to continue to do more. From a margin perspective, we're within our range. Securitization execution continues to be extremely favorable. We just priced the securitization very recently. We got very, very good execution, very close to the execution. We procured in our second deal of the year. We are very much leaning in because we have confidence in the distribution. There's been a particularly strong bid for credit over the past month or 2, just in sympathy with broader momentum in fixed income, and you'll see some of that in the results we report for Q1 as well.

[indiscernible]

That's a great question. We touched on this a little bit in the prepared remarks, but the ratio of capital to our volume is a critical metric for us, which speaks to exactly your point. And if you look at 2021, we had a record year. We had $12 million of volume. We had about $300 million, $325 million of average capital, so call it 4% or so. We're trying to get that lower. We're trying to get that lower to 2% to 3%. And that's going -- as more volume comes, we'll be able to do a securitization a month or more or do larger transactions. And as that ratio comes down and we've talked a lot about sort of the flexible capital, we've just procured, those are going to marry each other very, very well, we think, as volumes scale up from here.

We're going to do Doug, and then we're going to do Stephen.

Brooke, on your slide, when you talked about the returns for the joint venture assets. You showed that as the same as your own balance sheet, but you also highlighted the extra fees you get. Can you just talk about why that's the same return?

Yes. It's a good question. Our overall income will be captured both in mortgage banking and investments in joint ventures. And so on -- it's a little bit of, one, it's to scale because we are just showing 2 pie charts at 100%. You're not seeing just the growth in the bottom line. And I think that's the main point. We're going to be able to take the incremental capital to grow volumes so that we're generating more net income for shareholders. It's just that the -- if you looked at the investment in our joint venture stand-alone, it's like kind of a commensurate return, but there's other origination fees that we continue to earn that will be in part of our mortgage banking income. So bigger pie, just kind of commensurate stand-alone returns.

And then I guess just on the mortgage banking, the returns you show there, how much does that assume of decreasing that capital to volume? What are kind of the assumptions there? If you get to the 2% to 3%, is that upside to that ROE target?

Yes, it is a little bit. We're making -- the assumptions we're making assume about a deal a month, and there -- if we can lower that, if we can get that capital ratio down closer to 2%, there would be some upside there to ROEs for sure.

Great. Thank you. Stephen?

Stephen Laws from Raymond James. Chris, can you talk a little bit about the corporate structure? Is the REIT, the right structure to have? If you convert it out and say $80 million of dividends you're paying out that could support your own investments less reliable and outside capital raises. As the TRS grows, as the fee income grows, can you talk about what the right corporate structure is in 3, 5, 10 years?

Sure. I will say at our last Investor Day, I answered this and I just told I was very provocative. So I'll do my best to top myself. I think with the corporate structure, the good news is thanks to our NOLs and our tax situation, we're in no rush to do anything. Taxes aren't driving our dividend. So we've got a lot of discretion over setting it and whether we want to raise it, if we want to lower it. The good news is, is that, at least for the short term, is in our control. In the longer run, I guess, the provocative thing I would say is if we're successful with the strategy we laid out today, I'm not sure how we could remain a REIT. These businesses, especially the mortgage banking, the operating businesses and the fee income, obviously, TRS-styled revenue streams. And so to a certain extent, if we're successful, that would be a really good problem to have. We'll see. Some of it, though, in the near term is just a function of tax noise. And we're not going to be faced with that dilemma, I think, certainly not over the coming quarters.

I think we have time for one more question or we can just go to the cocktail.

No one wants to be the person to ask a question. So I'll hand it over to Chris then for some closing remarks.

Well, thank you all very much. Full House. I thought the event was a lot of fun. And hopefully, you learned a few things about Redwood. So please have some drinks, stick around for dinner, and thank you.