Redwood Trust, Inc (NYSE:RWT) Q3 2022 Earnings Conference Call October 27, 2022 5:00 PM ET
Company Participants
Kaitlyn Mauritz – Senior Vice President of Investor Relations
Chris Abate – Chief Executive Officer and Director
Dash Robinson – President
Brooke Carillo – Chief Financial Officer
Conference Call Participants
Douglas Harter – Credit Suisse
Eric Hagen – BTIG
Steve DeLaney – JMP Securities
Bose George – KBW
Stephen Laws – Raymond James
Operator
Good afternoon, and welcome to the Redwood Trust Inc. Third Quarter 2022 Financial Results Conference Call. Today’s conference is being recorded.
I’ll now turn the call over to Kaitlyn Mauritz, Redwood’s Senior Vice President of Investor Relations. Please go ahead, ma’am.
Kaitlyn Mauritz
Thank you, Operator. Hello, everyone, and thank you for joining us today for Redwood’s third quarter 2022 earnings conference call. With me on today’s call are Christopher Abate, Redwood’s Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Redwood’s Chief Financial Officer.
Before we begin, I want to remind you that certain statements made during management’s presentation today with respect to future financial or business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual results to differ materially.
We encourage you to read the Company’s Annual Report and Form 10-K, which provides a description of some of the factors that could have a material impact on the company’s performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we might also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non- GAAP financial measures are provided in our third quarter Redwood review, which is available on our website at www.redwoodtrust.com.
Also note that content on today’s conference call contains time sensitive information that’s only accurate as of today. And we do not intend and undertake no obligation to this information to reflect subsequent events or circumstances. Finally, today’s call is being recorded and will be available on our website later today.
I’ll now turn the call over to Chris for opening remarks.
Chris Abate
Thanks Kait and welcome everyone to Redwood’s third quarter 2022 earnings call. Before I hand it over to Dash and Brooke to discuss our operating results and financial performance, I want to begin by framing the quarter and light up the broader market conditions we’ve been facing. I’ll also comment on how we plan and navigate the myriad challenge facing the mortgage market.
But before we proceed, let me first summarize our headline results. Redwood’s GAAP book value declined to $10.18 per share at September 30, a 5.6%, declined from $10.78 per share at June 30. As was the case in the prior quarter, mark-to-market adjustments of negative $0.50 per share on our investment portfolio with a primary driver of our $0.44 cent per share GAAP loss for the quarter. As many of market swings like we’ve seen recently create volatility in our quarterly GAAP earnings due to the accounting elections we apply. That said the credit backing of our investment portfolio and its associated cash flows remained rock solid during the quarter. And we remain confident in our ability to recover mark-to-market declines in future quarters. As a means to isolate our operating performance from the short-term fluctuations in market prices, we’ve reintroduced a non-GAAP metric this quarter, earnings available for distribution. For the third quarter, earnings available for distribution was $0.16 per share. This compares to a loss of $0.11 per share in the second quarter when applying this metric. We also declared and paid a $0.23 cents per share common stock dividend, which is unchanged from the previous quarter. As you might suspect Brooke will have much more to say about our quarterly financial results in her prepared remarks.
Our markets need to normalize for operating businesses to return to their optimal levels of performance. Both our residential and business purpose mortgage banking platforms rebounded from the second quarter and successfully navigated the markets to near breakeven levels as we continue to leverage our deep network of whole loan buyers and our securitization capabilities to distribute loans. I say this in the context of a market where distress and significant realized losses are now testing both the viability of many residential originators, as well as the book value perseverance of many mortgage investors, particularly those more exposed to a volatile and inverted yield curve. Our credit focused investment portfolio, while impacted by mark-to-market volatility, continued to demonstrate fundamental strength and relative outperformance consistent with the long-term thesis we had when constructing the portfolio. All told, while today’s market remains humbling for all participants, our results reflected degree of resilience that is manifested in the solid book value performance relative to the broader mortgage sector. As the market is absorbing this swing cycle, conditions subsequent to quarter end have remained challenging, and we estimate our book value at October 26 to be down roughly 3% to 4% since quarter end, but more volatility expected as the Fed works to combat inflation, our emphasis on robust liquidity, strong investment cash flows, and conservative market positioning in mortgage banking will likely carry through into the first quarter of 2023.
Regarding our liquidity, as a reminder, we ended the third quarter with $297 million of unrestricted cash on hand, which represents roughly 3x our view of potential risk capital needs based on the liquidity of our assets and how they are financed. Our debt has been enhanced dramatically in recent years, with approximately 90% of our investment portfolio debt stack being non marginable and or nonrecourse at September 30. We continue to see very healthy bank demand to finance our products and maintain sufficient excess capacity to grow and scale our business with approximately $3.8 billion of available capacity through existing warehouse lines at September 30. Preserving operating flexibility also requires the ongoing rationalization of our cost structure, something we’ve been focused on, in addition to maintaining lower overall loan inventory balances, and more nimble loan distribution strategies. We are especially conservative with respect to the consumer residential mortgage sector, as industry volumes continue to be affected by rapidly accelerating mortgage rates.
This along with record home price appreciation in recent years, has pushed home purchase affordability to new lows and home refinance incentives even lower. Just this week, the NBA announced the mortgage applications had decreased to the lowest level in 25 years. Meanwhile, the largest buyer of mortgage-backed securities, the Federal Reserve has fully exited the market. While money center banks and overseas sovereign investors have also pulled back significantly. This has resulted in very low market liquidity, and for securitization issues such as ourselves formidable risks associated with aggregating large volumes of loans for future deals. Given this dynamic, and our conservative outlook for volumes, we’ve continued to reduce our capital allocation to residential mortgage banking, which is down almost 60% since the beginning of the year. By design, we have tremendous uses for the freed-up capital, however, including compelling investment opportunities and residential credit made possible by the market downturn. Through that lens the diverse nature of our businesses, particularly our ability to act as either a securitization issuer or an investor as market forces dictate remains a key competitive advantage for Redwood.
As we head into the fourth quarter, the fundamental story underlying our balance sheet remains very strong. And our investment portfolio continues to generate durable cash flows through return profile that is not overly levered to the shape of the yield curve. I like to illustrate this by focusing on our $1.2 billion securities portfolio, which looks quite a bit different than more typical portfolios investors have become accustomed to seeing in our sector. In our portfolio, mortgage-backed securities are not held in net premiums, as is often the case for mortgage REITs. Nor are they held at record high multiples, as we’ve seen recently for mortgage servicing rights. To the contrary, our securities portfolio was held at an aggregate $458 million discount of principal value, or just over $4 per share at September 30. This translated to a weighted average holding price of approximately $0.69 on the dollar on our balance sheet.
Why does this matter? For starters, it means we’re entitled to $0.100 on the dollar for assets we currently own at $0.69. It also means the underlying loans can absorb significant credit losses, before we lose any of our capital. Depending on your perspective, this either represents significant downside protection to our current book value, or significant upside potential to our future book value based on your outlook for the economy. But in these unique times, there’s actually more to the story than that, in the aggregate the loans backing our securities portfolio, the true engine behind our earnings upside potential, had an estimated current LTV of 50 at September 30. As a result of significant portfolio seasoning and record home price appreciation that we’ve experienced over the past few years. That implies that an average borrower can now withstand and extreme decline in home price, a decline well in excess of what we typically saw during the great financial crisis, and would also need to stop making monthly payments before any of our principal and the underlying mortgage was at risk.
Usually, the story would end there. And it would be a very good one when we think about the inherent fundamental strength of our securities portfolio, and by extension, our book value. But it’s hard not to also acknowledge that our common stock has been trading near its largest discount to book value since the great financial crisis. This is due to an environment where macro views and the path of interest rates and assume distress have overwhelmed the fundamental narrative across our sector. After 28 years as a public company, we’ve seen this before, and we’ve amassed empirical and operational data to help us make sense of such rare divergences. And our analysis shows a compelling opportunity to invest in our own publicly traded shares, as well as our convertible debt outstanding. We’ve already expressed this view by repurchasing close to 60 million of common stock over the last five months, but we anticipate doing much more in the near to medium term, have ample capital to do so.
I’ll now hand the call over to Dash Robinson, Redwood’s President to further discuss our operating results.
Dash Robinson
Thanks, Chris. Well, macro themes from the first half of the year remained key drivers of overall market activity in the third quarter. Performance across our businesses and investment portfolio was a testament to our long-term positioning and our ability to successfully navigate this extended period of market volatility. The abrupt move higher in rates has impacted all corners of the financial markets, and it’s perhaps now felt most acutely in residential mortgage volumes. But some industry estimates pegging overall year-over-year activity down 50% or more. Our residential business remained conservatively positioned in the third quarter locking $461 million of jumbo loans while distributing $612 million of loans, all through sales to eight discrete whole loan buyers.
Importantly, profitability on these third quarter sales was in line with our historical target gain on sale range. As a reminder, our most recent Sequoia securitization was executed in January of this year, and in 2022 overall, we have now sold $3.7 billion of loans and continue to track the securitization market notwithstanding the challenges that Chris referenced. At September 30, our net undistributed loan inventory was $712 million, down 5% from the end of Q2, we’ve continued to incrementally reduce our inventory thus far in Q4. The relatively high average coupon over inventory has allowed us to create investment profiles that whole loan buyers find attractive. This active pipeline management allowed us to reduce our capital allocation to residential mortgage banking to $150 million, freeing up valuable investment capacity as Chris mentioned earlier. Given the continued slowdown in capital markets activity, we believe that many market participants are grappling with large inventories of lower coupon loans. And we have also seen certain large depositories meaningfully reduced risk appetite for non-agency loans, especially through their correspondent channels.
Additionally, FHFA’s announcement earlier this week to reduce fees for certain mission driven loans ultimately represents a tailwind for private capital as markets normalized, given the expectation that [Inaudible] fees will rise for other parts of the GSE footprint within which issuers like ourselves have historically been competitive. In combination, these may represent important competitive tailwinds for us when the market begins to turn, as our hallmarks of speed and reliability are more critical now than ever.
Turning to business purpose lending, our team made important strategic progress in the third quarter through several key distribution wins, as well as significantly advancing the integration related to the Riverbend acquisition which closed the beginning of the third quarter. The revenue diversification from our BPL business continues to play out amidst the new interest rate and policy regime. As affordability remains a challenge there is continued demand for rentals, driving low vacancy rates and healthy cash flows on our loans. Borrower demand during the quarter continue to skew heavily towards bridge loans even on stabilized portfolios of homes. As many sponsors were reticent to lock in higher rates for more than two to three years. All-in Corevest funded $570 million of new loans during the quarter, over 80% of which were floating rate bridge loans. The quarter-over-quarter decrease in production was in step with our estimates for overall industry volumes, and for us was largely driven by reduced SFR volumes as sponsors grappled with higher rates. Bridge originations were down only 16% versus Q2. We were successful during the third quarter in distributing BPL loans through both securitization and whole loan sales. Our team completed a $274 million private SFR securitization with a large global institutional buyer at the end of the quarter, and we sold $85 million of loans, including SFR loans to an existing institutional buyer and single asset bridge loan produced by Riverbend to a handful of whole loan partners. As expected, market dynamics are causing overall bar demand to evolve, with many housing investors taking a more cautious approach due to higher financing costs, and uncertainty about the near-term path of home prices. While the fourth quarter has historically been a very busy one for BPL originations with sponsors, often seeking to complete transactions by year end, we would expect the recent slowdown in lending activity to continue in some capacity as transaction flow ebbs and borrowers not facing near term maturities wait for more favorable conditions.
That said, there remains opportunities to write loans that compelling risk adjusted returns, including lower leverage refinancing of bridge loans into SFR loans and loans to support construction of single-family homes for rent in markets still seeing meaningful supply shortfalls in quality rental housing stock. Additionally, as is the case in the consumer residential space, constrained market liquidity has had a meaningful impact on many smaller BPL originators, presenting us with an opportunity to prudently gain market share as others continue to pull back. Growth in home prices and rents the past several years represent important tailwinds for BPL borrowers and currently leave ample headroom to refinance maturing debt. But the reality of higher borrowing rates is leaving many sponsors with less excess cash on hand post refinance, creating opportunity for us to think creatively about complementary product offerings that may offer a compelling risk reward for future capital deployment for lenders like ourselves with the requisite structuring expertise and capital flexibility.
Turning to our investment portfolio, credit fundamentals remain strong during the third quarter as evidenced by continued durability of cash flows and low overall delinquencies. At quarter end, borrowers 90 days or more delinquent represented 2% across our organically created residential and BPL investments. A book that comprises approximately 70% of our total portfolio and includes $13 billion of loans across our Sequoia and Corevest securitization shelves and on securitize bridge portfolio. This compares to 2.4% at the end of the second quarter, reflective of continued accretive work by our asset management team on loan resolutions. As we have mentioned before, a significant portion of our investment portfolio is underpinned by loans with at least five years of seasoning, providing them with important cushion as home prices and rent growth trends begin to abate from their recent peaks. Like we saw in the second quarter, however, valuations continued to decouple from fundamentals has spread widening, particularly later in the third quarter was the dominant factor in the financial performance of the portfolio, resulting in further non cash unrealized fair value marks.
Overall, we deployed $235 million of capital during the third quarter largely split between organic BPO investments, third party investments and the completion of the Riverbend acquisition in addition to the share repurchases that Chris referenced. With observed delinquency rates in our books still very low, we remain focused on drivers of potential future borrower stress, including ongoing debt service and refinance risk. Our BPL bridge portfolio remains an area of strategic focus given borrower preference for shorter term debt with more prepayment flexibility. Bridge loans now represent 27% of capital on our investment portfolio and delivered a cash-on-cash return during the third quarter of approximately 18%. Over 95% of our bridge portfolio was directly originated by Corevest for our proprietary underwriting guidelines, which are consistently reassessed and have become more conservative in light of the overall lending environment. Average loan to cost on our 2022 bridge portfolio is approximately 78%, with an average as stabilized loan to value of approximately 65%. Over 90% of our bridge lending supports a sponsor strategy of acquiring and stabilizing single or multifamily real estate, rather than traditional shorter-term rehab and sales strategies. This has an important impact on the profile of our portfolio. The distribution of maturities is relatively smooth over the next 24 months with only 35% having a contractual maturity within the next year. Additionally, a substantial portion of the book is structured as lines of credit where we benefit from the structural benefit of riding one loan backed by a broader portfolio of homes. As Chris mentioned, we will continue to deploy capital strategically knowing that while we are seeing many compelling opportunities, including within our own capital structure, investing in these markets requires important discipline and balance. As such, we expect to maintain a defensive posture until the market finds a firmer footing. And with that, I’ll turn the call over to Brooke Carillo, Redwood’s Chief Financial Officer to cover our financial results in more detail.
Brooke Carillo
Thank you, Dash. As Chris mentioned, our GAAP book value was $10.18 per share or 5.6% lower than $10.78 per share at the end of the second quarter. The $0.60 decline was driven by negative $0.57 of primarily unrealized fair value changes on our investments, our dividend of $0.23, partially offset by $0.07 per share of other comprehensive income, and a $0.12 benefit from our $24 million of share repurchases in the quarter. Consistent with evolving industry practices, we have reintroduced a non-GAAP measure to provide the market insight into our run rate operating and investing margins, called Earnings Available for Distribution or EAD, which was $0.16 per share in the third quarter as compared to negative $0.11 per share in Q2. The measure adjusts GAAP net income for realized and unrealized gains and losses, the change in basis of our investments, as well as certain periodic expense items. We believe this measure will aid our stakeholder’s valuation of our long-term performance. And our relative performance given is a more consistent measure across peers and GAAP net income. Earnings available for distribution should not be considered an indication of our taxable income, or what is required to be distributed by the IRS. Our Redwood review provides the reconciliation of EAD to GAAP. The key drivers of our EAD results relative to the second quarter were higher economic net interest income from our investment portfolio, which benefited from higher asset yields, accretive deployment and improved mortgage banking results. These improvements were partially offset by long term interest expense from a full quarter impact of our June convertible debt issuance. Our mortgage banking platforms rebounded significantly from the second quarter. BPL mortgage banking activity saw a $26 million increase versus Q2, and spreads stabilized for SFR loans on positive underlying credit trends. Income from residential mortgage banking activities was $20 million higher as margins recovered on improved distribution execution, but overall profitability remains impacted by lower volumes.
As previously mentioned, investment per value changes continue to have a measurable impact on GAAP earnings, and were negative $58 million compared to negative $88 million in the second quarter, reflecting further credit spread widening during the quarter in several of our investment classes, most significantly within our reperforming loan securities portfolio. These fair value changes largely reflected unrealized mark-to-market losses, while fundamental credit performance, including delinquencies and LTVs remained stable across our portfolio. The negative fair value changes were partially offset by fair value increases on our interest rate hedges, MSRs, and floating rate bridge loans which benefited from rising interest rates. On July 1, we closed the previously announced acquisition of Riverbend for an initial cash purchase price of $44 million. Based on our purchase price allocation, we recorded $37 million of new goodwill and intangibles.
General and administrative expenses or G&A increased from the second quarter primarily related to employee severance and related transition expenses, which are excluded from EAD. Additionally, G&A included transaction expenses from Riverbend and the operating expenses associated with the addition of the platform. Other expenses increased slightly from the acquisition related intangible amortization expense. Both our continued focus on cash management initiatives and the alignment of our compensation structure with shareholders have resulted in an approximate 20% reduction of operating expenses year-to-date, versus the comparable period in 2021. We expect runway operating expenses to decline another 5% to 10% from year-to-date, annualized levels, as we head into 2023 and expect to further address our go forward cost structure as our outlook for 2023 continues to take shape.
During the third quarter, we prioritized liquidity and deepened our financing options. Recourse leverage at quarter end was 2.6x essentially flat to June 30 as lower debt balances in our operating businesses were slightly offset by lower tangible equity due to portfolio fair value changes and share buybacks. The level of recourse debt and the investment portfolio remains relatively low under one time, and creates opportunities to generate an additional $75 million to $100 million of capital by optimizing existing financing. We also estimate that we could generate an incremental $250 million of liquidity in excess of our current $297 million of cash by encumbering or financing currently unlevered assets. We believe this is more than sufficient to cover both opportunistic capital deployment and upcoming corporate debt maturities. So far in 2022, we have renewed extended or established $5.5 billion of lines across 14 facilities. In Q3, we’ve successfully increased or extended warehouse lines with new and existing domestic depositories, representing $300 million of capacity for the residential mortgage banking business, and initiated a new $500 million warehouse line for our business purpose mortgage banking operations, and completed a facility upsize. We have maintained nearly 90% of our total investment portfolio debt in non-marginable and non-recourse financing, which aided our liquidity during a volatile market, resulting in a net return of cash to Redwood from total margin activity on the quarter as a benefit from hedging activities outweighed additional margin to our financing counterparties.
The borrowing costs have gone up, the portfolio remains well matched in terms of the assets relative to debt with a floating rate coupon payment. And with that operator, we can open up the line for any questions.
Question-and-Answer Session
Operator
[Operator Instructions]
Our first question is from Doug Harter of Credit Suisse.
Douglas Harter
Thanks. As you mentioned, you’re looking to be a little bit more active in deploying into your own capital structure. Can you just talk about the attractiveness of common versus kind of handling the upcoming convert maturity early, and kind of how you’re weighing the various parts of the capital structure?
Chris Abate
Sure, Doug, this is Chris. We, at this point feel very good about our capital position across the board, we’re aware of the August 2023, convert maturity. But when we look at our capital, both in place today, as well as what can be freed up or optimized within the book, we think we have ample room to do a significant amount, kind of both on the stock. And that if we choose, obviously, the dynamic is constantly changing. I’d be remiss not to say as I mentioned in the opening remarks that the commonest trading at a discount that we rarely see, we’ve seen it only a few times over the course of the company’s history. So that definitely has our attention. As well as being opportunistic across the businesses. I think it’s difficult in mortgage banking today. But there’s somewhat of an inverse relationship between issuing and investing, which means it’s a great time to be an investor. So we’re definitely opportunistic, as far as investing in our business, as well as investing in third party assets.
Douglas Harter
And Brooke, you mentioned the ability to kind of get additional financing from the portfolio. Is that something that you guys are actively looking or actively working on today? Or would you kind of wait? Or are you waiting until you actually need it? Just how to think about that liquidity source?
Brooke Carillo
And it’s a good question. I think it’s — the answer is a bit of both and I think we have; we ended the quarter with $300 million of cash on hand. And so given rising costs of capital, we’re not out in a hurry to raise all of that $300 million of potential capital that we cited in our prepared remarks at once as we want to make sure we’re accretively deploying it. But there are tangible near-term opportunities that we see for both the amount of financing that we mentioned, the $75 million, that’s kind of more optimally financing some of our assets that have happened to us in place, but have de-levered over time. And so they’re much lower effective advance rates than we could get out there from other financing counterparties and then also, from financing currently unlevered assets at attractive rates. So it’s a bit of both, but you likely won’t see us do it all in one quarter.
Operator
Next question is from Jay McCandless of Redbush Securities.
Unidentified Analyst
Hey, good afternoon, thanks for taking my questions. The first one I had. I know the SG&A went up from 2Q to 3Q because of the Riverbend acquisition, but I guess how much of that increase was one time? And what should we expect for that line going forward?
Brooke Carillo
And it’s a good question. So as you mentioned in a G&A, was up $8 million, about $2.5 million was from the addition of Riverbend to our platform, and then we had another call it million dollars of transaction expenses that were one time and excluded from our earnings available for distribution. We had a few other onetime items that were associated with expense streamlining of $4 million. So that will continue to be a onetime item and then there was another adjustment relative to last quarter for a onetime benefit relative to a payroll tax. So I think in terms of run rate going forward, we had roughly, I would say about $6 million of one time, expenses that were nonrecurring. And I made a couple of comments in my prepared remarks around run rate expenses going forward. But if you take the 5% to 10% of expense cuts that I cited, and what our run rate has been thus far, that’s about $160 million, kind of total OpEx run rate for us.
Unidentified Analyst
Okay, great, thank you for that. And then next question. I had, I guess, any commentary post quarter about delinquencies in either the bridge portfolio or the SFR? And what I guess is the appetite, I think you guys talked about on the prepared comments about the appetite being maybe a little more hesitant, but just any color, you can give us around delinquencies there? Or if you think the marks might get worse and some of those assets.
Dash Robinson
Hey, Jay, it’s Dash. No, delinquencies have — are still in that 2% range across that part of the book, across the residential and BPL organic investments, like we talked about that piece of the story for us I think has been a really good one. And we are obviously like I said, in the prepared remarks very focused on maintaining the durability of the cash flows. So I want to your point on mark-to-market, like we said, there, from our perspective, there’s been a decoupling of mark-to-market in fundamentals, which continued in Q3. So it’s hard to comment necessarily on the mark-to-market part of the book, but from a cash flow durability perspective, we continue to feel really, really good, they’re great loans to do, and BPL right now we think we’ve got obviously the great competitive footprint, we’re in an environment where other lenders are clearly stepping back. And we continue to have really strong conviction about our borrower base and our products, it starts with the strength of the sponsor, and then goes into how we size the loans, we’ve always been appropriately conservative, in terms of how we think about stressing interest rates, and the takeout on our bridge loans. And that continues to serve us very well. Our bridge loans in general are a little bit different than a lot of the traditional sort of smaller balance, fix and flip loans that a lot of other lenders do, we certainly do some of that, but most of our loans are to larger sponsors, and allow us to get back to the table with them a lot throughout the life of the loan. They’re very well reserved for interest coverage. There are ongoing covenants, around leasing, cash flow, coverage, et cetera. So those things give us not only high confidence when we size those loans, but also the opportunity to make sure we’re very high touch with those bars throughout the life of their project. And that’s proven a tailwind to performance to date, we expect it to be going forward.
Unidentified Analyst
Great. And then just one other housekeeping thing, when you were talking about the bridge portfolio, you gave a couple of stats, and I couldn’t write them down fast enough. I think you said it was 78% loan to cost and then I missed the LTV stat on that.
Dash Robinson
It’s about 65%.
Operator
Our next question is from Eric Hagen of BTIG.
Eric Hagen
Hey, good afternoon. Hope you guys are doing alright, going back to the liquidity for just a second, can you describe what’s included in the unencumbered asset pool?
Brooke Carillo
Sure, it’s a mix of our assets that are all unlevered today, that includes things like our home equity improvement options and some of our subordinate securities, it’s a mix of things that are in our third party and organic securities that we own on our balance sheet, CRT is unlevered.
Eric Hagen
Okay, got it. Thank you. And then on the sales of the BPL loans in the quarter, can you talk about the execution that you got there and what the gain on sale looks like there? Can you also say what your unfunded commitment in the BPL portfolio was at the end of September [Inaudible]?
Dash Robinson
Yes, for the execution the loans we sold were largely single asset bridge loans where we were keeping a net strip of anywhere between 25 and 75 basis points, it may be average was about 50 or 60 on the quarter. The average unfunded commitment is just under a billion dollar, which we expect to sort of play out over the next couple of years. The vast majority of that is in longer term build per rent projects that we expect to fund over the next sort of six to eight quarters. So just provide some context but that’s the current number.
Operator
Our next question is from Steve DeLaney of JMP Securities.
Steve DeLaney
Thank you. First applaud the EAD decision. I think it’s very timely. And the district it’s very similar to the distributable EPS measure that the SEC mandated for the commercial mortgage REITs. And that’s been widely accepted by investors. So hopefully you don’t get any pushback. I think you’ll find a lot of support with the analyst on that. Also, bridge loans are the hot topic tonight. Your funding has held up well, you funded by my math, you funded $470 million and only sold $48 million. To me that suggests that you’re thinking about doing another securitization. You did one in the second quarter for $250 million is, are you — is the difference between the origination volume and the whole loan sales of $48 million, is that indicate — is that accurate that you hope to hold those and be able to securitize them as a permanent investment on your books rather than selling them off? Thanks.
Dash Robinson
We certainly have the flexibility to do that. And we did part of the $570 million is single family rental overall that we did and we did a like I said in my remarks a $275 million SFR securitization as well in Q2, which was Q3 excuse me, which is, which was very accretive. We have the optionality to do either one, Steve, I think our intention is to probably do a mix of whole on sales where we’re comfortable with gain on sale. A good chunk of the bridge book is already financed, non-recourse and non-mark-to-market. We have $550 million of bonds out there through two securitizations. We have another facility bilaterally, which is non-recourse and non-mark-to- market and punitively that capacity is over a billion dollars, which is obviously very valuable. So we do have the ability to sort of keep those outside of a traditional securitization context and feel very good about the returns and the match funding and the lack of contingent liquidity risks given how those deals are structured, but we’re always exploring a bunch of different avenues. We could look at a broadly distributed deal. There’s great interest in the loans that we make, certainly because of where the return profiles are no small part because they’re floating rate, obviously SFR is higher. So it’ll be a mix of things. But I do want to underscore that the current financing apparatuses, we have been compelling as is. So we don’t feel like our hand would be forced.
Steve DeLaney
Got it. Thanks Dash on that. The BPL whole loans. I mean, obviously, when you were back in the days when you were selling prom jumbo loans, the banks had a pretty good bid there. When you look at BPL whole loan sales. Is the buyer there a private fund, private debt fund? Or I know, obviously, you don’t want to be specific. But what’s the nature of the end buyer, the end investor in that product?
Dash Robinson
It’s a great question. It’s probably a mix of certain insurance vehicles, or insurance companies that have an appetite and sort of an expertise to deploy into the space. It’s certainly traditional funds, money managers. Securitization we did in Q3 was placed with one investors sort of very large global institutional investor with a few different sleeves of capital. And so I think one big upside to continuing to grow the BPL business is just continued whole loan buyer education. I think there’s a relatively orderly whole loan market for BPL. It’s not as efficient as jumbo as when markets are more orderly than they are today. And so that’s a huge upside for us. It’s traditionally not the banks, which is, as you know, Steve, part of the reason we love the business. It’s just not efficiently —
Steve DeLaney
There’s no cheap money coming into that particular sector, like the banks normally flood.
Dash Robinson
That’s right.
Steve DeLaney
Well, lastly, the reallocation of capital away from the origination building, rather than trying to bang your head against the post to make that happened on a volume basis. I applaud that. And you’ve proven you can be an opportunistic investor over the years. And I know there’s strong relationships that allow you to make that happen. So all the best for the fourth quarter and closing out the year. Thank you.
Operator
Our next question is from Bose George of KBW.
Bose George
Hi, everyone. Good afternoon. Actually I wanted to ask about the funding markets. I mean, they sound solid, but just can you talk about any trends there? Are you seeing changes in terms of advanced rates or the number of lenders active in the markets, et cetera.
Brooke Carillo
Hi, Bose. So far, it’s been very orderly. I mentioned in my prepared remarks that we’ve rolled about $5.5 billion of lines across 14 facilities, all with domestic banks. And we’ve had really a lot of stability in terms of our advanced rates. We are — have recently seen a little bit of increases on spreads, just given everyone’s cost to capital has gone up. But as most of those facilities that we use are for our mortgage banking inventory, where we’re resetting those coupons live with the market. So that’s why we’ve continued to see durability from our net interest income in terms of our ability to cushion that impact.
Dash Robinson
Yes, Bose, I’d also add that the collateral quality remains high. And it’s a collateralized lending business. And I think there’s big differences today versus 10 or 15 years ago, after the great financial crisis, I think lenders are pretty confident and the collateral and the performance to date. So that keeps the markets open.
Bose George
Okay, great. That’s helpful, thanks. Actually, switching to the, thanks for the EAD disclosure, in terms of the returns from the discount assets as they run off, I assume that isn’t captured in EAD. Right? Is that going to just be like in book value or?
Brooke Carillo
No, we actually are, we are trying to capture the concept of accretion to our change in basis of investments, which I know our material just came out here shortly before the call. But we do outline in detail what those add backs products. We only have a very small portion of our assets that are — our held for sale assets just are like $140 million, which are effective yield. So we’re trying to capture that principal portion of our income by effectively recapturing some of our effective yields back through income.
Bose George
Okay. Thanks. And then actually, could you just repeat what you said earlier about the goodwill from the Riverbend acquisition?
Brooke Carillo
Yes, we have about $37 million of goodwill and intangibles from the Riverbend acquisition based off our $44 million purchase price.
Operator
Our next question is from Stephen Laws of Raymond James.
Stephen Laws
Hi. Good afternoon. Dash, a lot has been covered on the BPL side, but one question on kind of pricing and I guess really across bridge and SFR. But how much has not at rates, I don’t want to say stabilized. But we don’t have this rapid pace of increase or maybe we’re getting a month or a few weeks how quickly you’re able to get pricing reset? Have we seen that flow through? Or is there still some catchup across products? Have you been able to kind of maintain or increase your spreads as you think about this cost of financing for the new investments increasing?
Dash Robinson
Yes, we have much like on the resi side, we refresh our pricing daily, I think with bridge loans that definitely is a more sort of loan-by-loan analysis based on sponsor quality leverage, geography, so we always have no great optionality there, I think as you know Steven, for the fixed rate SFR loans, we don’t actually lock those loans until right before we fund. So that’s a little bit of a simpler pipeline management tool than with the traditional jumbo pipeline, I’d say, yes, we do have pricing power, clear the fact that SOFR is now at 3% has sort of moved the effective floating rate coupon and at the very high single low, very low double digits which is appealing. And we still compete on every loan, but I would say the, our overall pricing power is in a good place. And, to your point, we do have the ability to be very nimble in terms of how we adjust our prices verse what we’re seeing in the market.
Stephen Laws
Thanks Dash. Chris, you’ve touched on this a couple times, you mentioned third party securities, and they talked to Doug and Steve brought it up as well. 10, 11, 12 years ago, you guys bought a pretty material amount that you then sold over the following years at some pretty attractive returns. But I think that if I remember correctly, maybe the rest of your capital stack wasn’t so cheap. So kind of thinking about how you view that the relative attractiveness of buying something back in your stack and retiring it versus buying third party securities that you can sell later and maybe recycle that capital back into the, say origination business if it returns at that point.
Chris Abate
Yes, no. Great observation. We did a lot of this after the great financial crisis, and I’d say securities aren’t quite as cheap as they were back then. I do think they’re probably getting cheaper in the consumer resi market, for instance. There’s not a lot of securitizations getting done right now, other than age collateral. That’s sort of been the story for the year and somewhat of a distressed area right now where if you don’t need to be securitizing at least certainly in jumbo, you’re probably not. So eventually these warehouse lines that are formed, this collateral will come to market, it may not come to market until Q1, but it will and there should be some extremely compelling opportunities to put capital to work. But I think it’s kind of a timing issue for us, the one thing we have great line of sight in is obviously share repurchases. And so that’s something that we can affect immediately, which is, obviously, going to be a focus of ours. But I do think we’re starting to see really good opportunities. And, of course one of the great parts of the BPL business, is we can continue to organically create these investments. When you look at the profiles of the investments, we’re putting on the books today, they look extremely attractive to me. And by controlling the credit and the underwriting, we feel really good about the quality of the book, and certainly across a range of scenarios, based on what’s going on with the economy. So, overall, I think it’s definitely an investor’s market. And hopefully, you’ll see some virtuous combination of both here in the coming quarters.
Stephen Laws
Thanks, Chris. Appreciate that. And lastly, just some comments on Horizons. And can you provide maybe an update on your portfolio there in this environment in the outperformers, and the underperformers highlight. And then, from a new investment standpoint certainly valuations in public markets have moved a lot. Have you seen similar moves in the private market? Are those valuations catching up? How does the new pipeline in Horizons look?
Dash Robinson
Thanks for the questions, Stephen. It’s, I would say, we’ve become, as you might expect, even more judicious around capital deployment in Horizons, Horizons has always had a very specific investment thesis around trying to marry durable technology solutions with needs for our business or our markets. So it’s always been sort of a rifle shot approach. And I would say even more so today, obviously, given where the markets are. The book, we’re generally very, very pleased with. We did on a net basis, write up on a small amount of the overall Horizons investments this quarter. there’s no bellwether, like further opportunities for the underlying portfolio companies to raise capital. So in Q3, four of the portfolio companies in Horizons actually did raise incremental capital we participated in to one part — one led to a small write up and the other three were basically non unpriced deals that were basically flat to the prior raises, which is great, because it allows them more runway without the dilution risk of the prior investors, including ourselves. So I think we’ve been really pleased with that.
But look, the market is — market overall is challenging obviously, these companies, as you know, we’re are largely very early stage or seed round that we’re investing in. So you don’t see the daily price action, obviously, like you do with the publics, but it’s clearly made its way in to more of the top of the funnel, I would say in terms of the earlier stage companies and ultimately feel like it will create more opportunity for us. We’re still focused on business models, which are more a cyclical and more sort of serving in efficiencies and durable markets, whether it’s solutions for landlords and tenants, blockchain use cases that are more durable through cycles and not cyclical to volumes. And I think we’ve been well served by that so far, but more to come for sure.
Operator
Now, there are no further questions. And with this, concludes today’s teleconference. Thank you for joining us. You may now disconnect your lines.
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