This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good day and welcome to the AMC Investor Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Kevin Sullivan.
spk04: Please go ahead.
spk05: Good morning, everyone, and welcome to our third quarter investor call.
spk02: I'm Kevin Sullivan, General Counsel of Altasource Asset Management Corporation. Today, we will update you on developments in our business during the third quarter and and discuss the material referenced in our investor presentation, which was issued earlier this morning. It can be found on the stockholders' page of our website at www.altasourceamc.com. Note, information on forward-looking statements appears on the investor presentation, and we direct your attention to that information. This audio cast is copyrighted material of AAMC and may not be duplicated, reproduced, or rebroadcast without our consent. I'm joined today by our Chief Executive Officer, Jason Kopchak, and our Chief Financial Officer, Steven Kralman. Jason will update you on the company's business and then we'll be happy to answer any questions. Jason, over to you. Thank you, Kevin.
spk03: I would also like to welcome everyone to our call. I'm excited to speak to you this morning and to update you on our progress. We continue developing our private credit business in the third quarter. We have produced over $123 million in private credit commitments through the end of the third quarter. an increase of 175% from the second quarter. More than 90% of those commitments have terms of one year or less. Despite the Federal Reserve raising rates by 225 basis points over the last five months, our current portfolio is still profitable. We have dynamically raised our rates and are currently originating loans with a total yield of 12.5% or greater and have lowered our advance rates on our bridge originations by 10 points. We generated total revenue of over 1.9 million in the third quarter, more than triple the net revenue earned in the second quarter. Turning to other developments during the quarter, we entered into a warehouse line with Flagstar Bank during the third quarter and have received approximately 53 million of funding from Flagstar by the end of the quarter. We also have opened a new sales headquarters in Tampa and repurchased approximately 287,000 shares of our common stock from Putnam at a discount to the trading price. Finally, in an arbitration filed against the company by its former CEO, Indranil Chatterjee, the arbitrator recently dismissed all of his claims, sanctioned him for his misconduct, required him to pay back his signing bonus in accordance with his employment agreement, and permitted all of our remaining claims to proceed. We are pleased the arbitrator found Mr. Chatterjee's claims meritless. Now, I would like to turn your attention to an overview of current market conditions. Despite the material rise in interest rate environment over the past year, we are still seeing strong demand for housing that we believe is due to both the housing shortage as well as the modernization of existing housing stock in the United States. We continue to see strong demand in the investment property space from borrowers and investors, and we are increasing our focus in this space accordingly. In the bridge and rehab market for single-family and multifamily homes and ground-up construction, we have dynamically adjusted our loan pricing to higher levels and implemented lower maximums of loan-to-cost and loan-to-value ratios to accommodate the headwinds that the market is experiencing. We are aligning our business model to provide credit to build affordable housing and services to assist homeowners. As a reminder, we are currently originating and acquiring business purpose loans and are not yet actively providing mortgages in the consumer residential market. While the interest rate increases and the home prices decline in many markets that are affecting the entire real estate market, we continue to see opportunities in the residential transitional loan space. In addition, the market conditions in the largest MSAs across the U.S. vary widely. For example, while a number of West Coast markets have experienced significant declines, other markets in the Midwest, Northeast, and Southeast have had different trajectories. Now let me spend some time discussing where we are headed. We are creating alternative credit through two main areas, direct-to-borrower, real estate developers and investors, and wholesale originations. We are primarily focused on originating private credit products, but we can also augment production through the purchases of closed loans. Originations allow us to better control the creation of the assets well as being more creative in terms of yields to the shareholders than purchasing loans as I've said previously we do not plan on being an aggregator however current volatility in the fixed income markets has delayed our forward flow initiatives for selling assets we are making significant strides and bringing new capital to the bridge space take out investors for alternative assets that we are creating in addition We believe utilizing technology, data, and analytics will be critical to our success. We have developed and are continuing to optimize a data-driven proprietary system which will dramatically allow us to increase our reach to the specialized demand in the market. We are also creating an enterprise database management system to help us utilize information for purposes of understanding our markets, clients' needs, and the overall customer experience. In short, we believe There still are opportunities in a residential transition market, and we think our data-driven analytics provide us an advantage over our competitors. That concludes prepared material for today.
spk05: I'm now happy to take questions.
spk04: Thank you.
spk01: If you would like to ask a question at this time, please press the star key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.
spk04: We will take our first question from Jeff Moore from Borough Capital.
spk01: Please go ahead.
spk06: Hey, Jason. I was curious as to what the loan book looks like. What's the general update on the sales process for it? And what kind of institutions are you talking to for selling those loans? And do you have any ideas what the timeframe for closing should be?
spk03: Hey, Jeff, it's good to connect again. Appreciate the question. Those are great questions. Let's talk initially about what institutions are buying DSCR loans, then we'll go into bridge loans. At a high level, generally speaking, insurance companies, REITs, money managers, and some banks buy DSCR slash investment property loans. We are fairly far along with several of the largest REITs and money managers, insurance companies, to sell on a forward flow basis. We expect to have these takeouts firmed up in the next two to three weeks. We're in ongoing conversations with them to get this wrapped up. As I mentioned, the goal is not to aggregate these loans. The goal is to originate and sell on a weekly basis into these institutions. By selling on a forward flow basis, the goal here is to minimize interest rate risk, principal risk, and create a velocity business that capitalizes on the yield premium that you obtain when you sell loans. So once we get these takeouts firmed up, The goal at that point will be to increase our marketing slash lead generation, which will increase the faculty revenue that we're not currently getting through the sales of loans, which effectively would be incremental to our current revenue. So that's for the DSCR slash investment property. On the RTL side, the residential transitional loans slash bridge space, we're in a similar situation where we're pretty far along with several counterparties to set up forward flow takeouts. To step back a second, Traditionally speaking, in the bridge space or RTL space, you have REITs, credit funds, money managers, hedge funds, and a few insurance companies that buy this product. Again, we're pretty far along. We expect in the next two to three weeks to have these forward flows set up, and then the goal would be to sell on a weekly basis. As I mentioned with DSCR loans, the same things with RTLs, we're not looking to aggregate. The goal is to originate the sell model. Again, that keeps the interest rate exposure down. keeps our principal risk exposure down. So that's where that's at. At the same time, once we get these forward flow relationships in place, then we'll start turning up our marketing, our lead generation to drive the creation of products into these clients. So again, I think just to summarize, as you can imagine, as we sell on a programmatic basis, we'll start gaining revenue that we're not getting now through the sales of loans. because we'll receive premiums from selling loans that we're not currently getting. To touch on, I think, something that you and I have talked about in the past, generally speaking, from an earnings or spread standpoint, we're targeting right now in the current environment about 350 basis points per origination. So the goal would be, as we originate loans to sell them, to effectively earn about 350 basis points per origination per product. And that's both for the DSCR slash investment property loans as well as a bridge product. That's in the current environment.
spk00: Okay.
spk06: Yeah, yeah, yeah. So are you all – previously you said that you would be doing – you thought you could be doing about 600 million of these originations and then sales to whatever institutions you want to buy them, right? Do you still think that's a good number? Or given the market right now, do you think that's going to be reduced since things seem to be a little bit slow? No.
spk03: Yeah, that's a good question. For 2023, we feel very confident we'll be at 600, if not greater, 600 million in total production. For us to get those numbers, we have to have these takeouts lined up. Again, as I mentioned a minute ago, we're pretty far along in getting these takeouts lined up. Once we get these takeouts lined up, the marketing that we talked about, the lead generation system that we created, we tested between September and October. We feel very good that even in the current environment that we'll have in excess of $600 million in loan production. So, yeah, we feel good about it. Even though there's volatility in the fixed income market, there's still demand. There's still demand for both the rental slash DSCR product and for the bridge. It's just not as liquid as it once was 12 months ago. There's still plenty of demand there.
spk06: Okay, so doing some... Back to the envelope math, if you're getting 350 basis points per origination on $600 million, you would be getting a spread on that $600 million in next calendar year of about $21 million, right? And that's on a market cap of call it $29 million right now. Once you have this thing at scale, what kind of margins are you expecting and how much of that would be profit? Because that's not even taking into account the $100 million of loans you have on your books that at some point next year should be yielding double-digit interest as well.
spk03: At the end of the day, again, it's a good question. Look, we have our model figured out where we think we're going to be for return on equity I don't want to, we're still building out. So frankly, we're still building out. We have the synergies in India, which makes us very competitive in terms of processing and creating these loans. We feel that we've already proved out internally our marketing and lead generation is very cost effective. I don't want to get into specifics because we're still building it out. I can say that we're not an aggregator. We're not trying to compete with REITs. We have a originate to distribute model that we feel our return on equity is well north of what you see in the aggregation side of the business. So with that being said, I don't want to state a return on equity just yet, but we feel pretty good that our model and where we think we're headed is going to prove out, and we'll know next year, but it's going to be north of what you see at REITs and aggregators. I know that's a general framework. I'm trying to give you a framework.
spk06: Yeah, and it seems like you guys are, I guess, strengthening your borrower requirements right now. By lowering the – you said in the presentation you're lowering your LTV and your loan cost. What, like, what general metrics are you using for borrowers? Like, I mean, your average borrower, is it like a, I don't know, like a 700 credit score, a 600 credit score, an 800 credit score? And then, like, how does that process work?
spk03: Again, that's a great question, Jeff. So a couple – we have two different products. You have the rental investment property product. Again, neither of these are consumer products. These are business-purpose loans. So on the DSCR rental product, our criteria comes right from insurance companies, REITs, banks, and money managers who are very active in aggregating. Generally speaking, we take their criteria, and that's what we develop our marketing. So generally speaking, you are a 700-plus borrower. Your LTV on the investment property side is going to be 80 or less annually. And they typically look for experience and debt service coverage. But that's a pretty binary product. I think what you're looking for is more on the bridge side. So on the bridge side, we target borrowers with – have a history of buying fix and flips, roundup constructions, as well as rehabs. Typically, we want to see people with six to seven transactions in the last two years. So we are looking for an experienced borrower base. What we notice in this current environment with rates going up and the cost of financing going up, the less experienced borrowers, less capital are getting weeded out. And the very experienced borrowers, the ones that have done five, six, seven projects in the last two years, who have a recent history of being successful, they continue to operate business as usual. What we have noticed is differences. Instead of them making a return on equity, say, 40, 45, they're making a return on equity in the high 20s, low 30s. But they still have demand for financing needs. They're still looking for leverage. And we continue to see strong demand from the experience market. Touch on a couple more points, Jeff. We do look for fraud. We look for background issues. We look for experience. And the last thing is we're very focused on valuation of the collateral. So for us in that bridge RTL space, it's important for us to be accurate on our value of the property. At the end of the day, if the opportunity does not go the way the borrower expects it to go, we have to take it back to collateral. We want to make sure the value is there. So those are big drivers to what we're doing there, Jeff.
spk05: Does that answer your question?
spk01: As a reminder, to ask a question at this time, please press star 1. Please limit to two questions and re-queue for follow-up questions. We have another question from Matthew Howlett from Briley. Please go ahead.
spk05: Oh, hey, Jason. Thanks for taking my question. Hey, Matt. Nice to chat.
spk07: Yeah, I think I heard you say it, but when we look at AMC's model, origination model, I just want to hear you talk about it again. What will the ROE profile versus what we traditionally see on aggregators, REIT-type models? It looks like you're going to generate a higher ROE. I appreciate it. You're not going to get better than this right now. But when we look at this model from a high level versus what we traditionally see in this space, originate to hold, dividends, how are you going to be differentiated? How is it superior? Will the returns be? be higher, but will they be more stable over time? Just go over a little bit about how you're going to differentiate versus what's out there.
spk03: Matt, those are, again, great questions. I think at the end of the day, we've got to take a step back here. When you look at the amount of capital raised in the alternative asset space, it's trillions upon trillions. So there's a massive amount of capital that's been raised. In years past, a lot of this capital from the large money managers and insurance companies have gone to the street to buy products. They can't anymore. They're going direct. The way we look at this business is once we get our forward commitments lined up with these large REITs, with these large insurance companies, with these large money managers, they have incredible, I mean, they have, you know, amongst them, trillions of dollars in alternative capital, rate for alternative assets raised. We're doing forward commits. So our goal is to originate on a forward flow basis and have volume set up by a forward flow. So with that being said, We're not looking to do open market bidding and putting random pools out there. We're looking to have a scheduled, okay, $250 million is going here, $500 million is going there. So that way we can ramp our volume up and have a much more fluid process for a takeout because what we want is not lumpy revenues, but we want consistent volume targets. So that way we can ascertain how much product we can create and target where it's going. So with that being said, I expect once we have our forward flows set up, our revenues will increase. We'll continue to look for additional capital partners that have, again, there's large insurance companies out there that have hundreds of billions of dollars. We'll be looking for continued improvement in our partners for size, for strength, and that will allow our ROE to be much more stable and more forward-looking. A lot of people originate and they go by trade by trade. Our view is We know who has capital. We're in talks with those partners. These are the largest money managers, the largest insurance companies out there, and our goal is to resonate into their portfolio, and that should smooth out our earnings and effectively make it less cyclical. Does that help, Matt? Look, it helps a lot.
spk07: You're going to be, obviously, something like a very robust, growing origination platform. The capital gets turned over quickly. It's reoccurring fee income, high cash flows, and you expect to retain investments for just the compounding impact and continue to grow the origination platform. Is that sort of how I think about the model?
spk03: Exactly. Exactly. So when you look at an insurance company, maybe they have $30 billion in the mortgage space. Our goal is to line up and be able to sell a half a billion or a billion dollars to that particular company. That allows us to have the origination fees in the front. we get a certain amount of spread or premium obtained from the sale. We potentially even have clients who want to use us for asset management because of our history and our strength in India. So the goal is to create this product based on the demand from the fixed income markets. That's massive. And our job effectively to go out, create, you know, to reach into that demand, create the product and distribute it into these large fixed income accounts. So. It, look, it sounds like a compelling opportunity.
spk07: We'll look for more color. I mean, obviously without, we'll wait for more details, but just can you just give me a general overview? Is everything in terms of cost to originate and centralization of the origination platform, the credit platform, how is that all going to be centralized? Just give me a sense on the underwriting, the credit, and the overall cost.
spk03: That's a great question. Our underwriting, our processing underwriting, the fulfillment, distribution, everything's going to be done out of India. We have a A deep history there. Our team has underwritten, purchased, and asked to manage over 30,000 non-performing mortgages, single-family homes, and REOs. So it's all done out of there. We have an incredibly talented and experienced team, very highly educated. At the same time, the cost effectiveness there relative to the U.S. is very material. And I've been in, you know, my experience being on the street for the last 10 years, I've been in a lot of shops. You know, our advantage in the cost side is tremendous on that front. Then when you start looking at, we're very data-driven, so we've tested our marketing, our lead generation the last 60 days. We found that even in an adverse market with rates going up and concerns around the housing market going down, we find our production has been very good. So our lead generation has been fantastic. Our demand for product is fantastic. So the cost-wise, we think our numbers are very good and the demand is there. So we feel good with our our lead generation cost, our cost structure there. So as a whole, we feel that we're in talks with some of the top capital providers out there to buy product. And so when you sell into the biggest capital aggregators out there, these REITs, these insurance companies, you have a very effective end user cost of capital. Our indie operation is very talented, very experienced, as well as very cost effective. Our tax structure here in the USVI allows us you know, effectively a competitive advantage because we have, you know, we have a corporate, what's called an EDC tax structure that allows us to be more competitive in pricing and just execution. So overall, we feel between our advantage in experience and expense structure in India, our tax structure in ABI, as well as our partners on the end takeouts and our very, I think, very best-in-class use of data and lead generation, we feel We're going to be very competitive in this space, very competitive across the different products that we originate.
spk07: Well, I'll hop back in here. We look forward to hearing more disclosures. I'll tell you, there's not a lot of comps out there in the public market, and this alternative lending space is growing bigger and bigger. So we certainly look forward to hearing more about the model and the differentiation relative to the REIT group.
spk03: I think you're right, man. I think when you look at it, a lot of the – A lot of the early movers in the bridge and transitional space got bought up quickly by, again, large money managers. I'm not going to name names, but there's well-known household accounts that went out and bought a lot of our peers because they see the opportunity, they have the demand in alternative assets, and they've acquired them. So there aren't really any, I don't know of any originating to distribute alternative asset originator out there. So we're very excited because we feel like we're in a good space that, A lot of companies have been bought at some very attractive earnings. And we feel as a public company, we have a lot of runway. Just real quick, what's the – what do you put the overall market size?
spk07: I know it's a broad question, but just curious how you look at the market. I know clearly there's a huge – You said size-wise for products? Yes.
spk03: So look, you've got to look at each product. When you look at single-family, single-family bridge – fix and flip slash ground construction, there's no one data source. I think generally speaking, in normalized years, it's between $60 and $80 billion. Generally speaking, that's the numbers that are thrown out. That's just for the single family, $60 to $80 billion. When you start looking at multifamily bridge in value, that's another $80 to $100 billion. When you look at the DSCR investment property space, there's 19 million rental properties out there, 19 million. That's by the census tract. So The DSCR space is massive, okay? And effectively, everybody knows this, but when you look at the GSEs and banks, their model is kind of dated when it comes to income documentation and how they evaluate credit and real estate. And that's another situation that creates a great opportunity for us because the investment property slash business purpose space doesn't really flow into the GSEs or banks. So the size of the market is pretty massive. I think it's undervalued how big. So hopefully, did that help? Yeah, no, it helps.
spk07: It helps, and it's just, you know, you pick up a newspaper every day and you read about, you know, institutions, going to buy more single family. You know, it's just like the industry just seems like it's going to be absolutely enormous. So, like I said, nothing publicly traded in your model.
spk03: Yeah, nothing publicly traded. At the same time, everybody's well known that there's a housing shortage in the U.S., and the number's anywhere from 4 million to 6 million houses, the shortage, and that's just affordable housing. So affordable housing is definitely – you know a key driver in what we're doing we have you know a lot of millennials are starting to you know buy housing have families so we just there's a tremendous growth opportunity we've seen for the last 10 years the space grow from nothing from a cottage industry to being much more institutional and frankly there's demand demand by borrowers you know builders uh builders real estate investors as well as rental property owners but there's also a tremendous amount of demand in a fixed income market. So on both sides, we're seeing demand. We think it's a great opportunity. It's a space that's not very institutional per se, so there's a lot of areas where there's friction and an ability for us to come in and take our experience and apply it and create something that's very special. Good. We look forward.
spk07: I certainly look forward to hearing more about your strategy. Thanks a lot, Jay.
spk05: Thanks, Matt.
spk01: As a reminder, to ask a question at this time, please press Please ensure the mute button on your telephone is switched off to allow your signal to reach our equipment. We will take a follow-up question from Jeff Moore from Boer Oak Capital. Please go ahead.
spk06: Hey, Jason. Okay, so the numbers that you were saying to the last caller about the total, the TAM, the total market size, It sounds like Ural's yearly origination is going to be less than a half of a percent of that. Did I hear that right?
spk03: Yeah, I mean, look, the numbers we threw out, $600 million, do I think we can originate more than that? Absolutely. The amount that we put out there to $600 million, you're right, it's less than a half percent. So the ability to scale in the markets is there. It's huge. So that's one of the reasons we're very excited about it.
spk06: Okay. Yeah, yeah, yeah. And, I mean, you guys really aren't even, like, advertising for loads of stuff yet. I mean, like, on Instagram or whatever, I mean, even Twitter, I'll have, like, you know, Corvest or, you know, Lending Home or people, like, advertise to me since I do some real estate. And, like, I haven't seen anything from you all. So, like, you all think you can do that without really even advertising, I guess, right?
spk03: Exactly, Jeff. So, we've done an analysis. We had a third party who we feel very It's very incredible, very institutional to do an analysis of the amount of marketing that's getting done in the business purpose space. We feel, one, between their market analysis and two, the testing that we've done over the last 60 days, we feel that our ability to scale is very material. We can scale in a massive way. Before we do that, we're trying to get our takeout set up. By getting our takeout set up for the different channels, then we can get in our back office up and running, which is up and running, Then we can go turn on the marketing, go do what we need to do, and create the product that we're going to distribute. So we don't want to – we feel, one, that we have a good handle on how big the market is and how quickly and how much it's going to cost per loan to create each loan in each space. So we've done that analysis. We feel good about it. Frankly, I want to – if I could spend the money yesterday, I would have spent the money yesterday to turn it up. But we need to get the takeout set up. And once we get the takeout set up, I think our volume number is going to be more than proved out across DSCR, across bridge, fix, and flip, as well as even multifamily. You know, there's a tremendous opportunity in that multifamily bridge and value-add space between the $1 and $7 million note size, notional size.
spk06: Yeah, and just as a note, I was unaware that the way you were setting these things up were, like, basically for predetermined amounts per unit. For the buyers, right? So you're not, like you said, you're not subject to an auction model, and it should make your cash flows much more predictable, which is, I mean, reassuring for me, I guess, as an investor.
spk03: I mean, I was already pretty excited about what you guys are doing. We want to be systemic. The goal is to make it a systemic programmatic business. It's not a trade. So this is a business we feel like the opportunity is massive between, you know, again, you have to look at this paper is not going to agencies. They're kind of archaic in the way they look at values and income documentation. So we feel there's a massive opportunity there. When you look at the housing shortage, when you look at the housing shortage, it affects single-family homes as well as multifamilies. We see that there. So we feel very good that if we create the right partnerships and takeouts, that we're going to be able to scale this very systemically. And this is a business model. This is not a trade. And we're very excited that our earnings will be a lot more smoother than going out and buying one-off trades. So anyways, yes, to answer your questions, yes.
spk06: Cool. Okay. Well, I have one more kind of multi-part question. It looks like going through your queue that you had about $13.2 million in principal repayment, and you repaid like called $2.2 million of borrowed funds. I'm assuming that's on your warehouse. And it looks like you marked down like a million and a half dollars in loans. Can you talk about that slight markdown you had in the value of the loans? And then also the principal repayment. I mean, if you got back $13.2 million in principal repayment last quarter, but you haven't had these things in your books very long, it seems like over, well, well over 10% of your loans have already paid you back. that you've only had on your books for a couple months. Is that accurate, and kind of what are your thoughts going forward on a lot?
spk03: Yeah, that's pretty astute. I think at the end of the day, we bought – so look, step back. You had a couple different questions there. We bought some seasoned paper in the very beginning, and when you buy seasoned paper in a bridge, keep in mind the paper that we're buying and originating is generally speaking 12 months or less in duration. In a rising rate environment, in my view, that's very – That's very good paper because you're not in it long term. With that being said, we also bought some season paper. And when I say season, it might have been four or five months season. Yeah, some of that paper has paid off. And we expected that. And the goal was to demonstrate that we're in the space, create some income, and we did that. So some of those loans are already paying off, number one. Number two, this paper does pay off quick. Experienced borrowers do pay off quick. Generally speaking, in the bridge space, you're looking at 11 months as the average life expectancy of the bridge loan, so one of the hard burners you've constantly got to replenish your inventory. On the flip side, we want that in a rising rate environment. That's played to exactly how we thought it'd play out, number one. Number two, we talked about marking. As rates go up, you mark your portfolio relative to the discount rate in the market. We've taken some book losses on that front, but this stuff's paid off. In fact, where we financed it at and where we bought it at, we're still making money. As a whole, our book is very profitable. We have about, at the end of the quarter, approximately $50 million in cash that we have bought loans in or originated loans into cash. So not all of our portfolio is financed through the warehouse line. We have a fair amount of portfolio that was held in cash and a fair amount on the warehouse line So that's why the paydowns per 930 weren't respectively, you know, because not 100% is finance. So again, some of it's paid off in cash, some of it's paid off on our warehouse line. Does that answer your question, Jeff?
spk06: Yeah, man. That's awesome. I'm super excited for you guys.
spk03: And one more thing, Jeff. When we bought loans with cash, part of the reason is, too, keep in mind is we're just getting the business going. Originations take time. So when you build an origination platform, You don't just flip a switch and you start originating tomorrow. It takes time getting your underwriting, your sales people hired, your marketing going. So we had to go out and buy closed loans to slow down our cash burn to effectively get processes in place. So the goal originally, we knew we were going to buy closed loans because we had different areas that we wanted to address. But long term, that was never the goal was to aggregate. So that definitely has helped us tremendously in creating revenues, slowing down our cash burn, getting our processes in place, It allowed us to get a warehouse line in place. It allowed us to look at other warehouse lines. So by buying closed loans and by originating with our cash, it's helped us a ton. But at the same time, our business model is not to hold loans. So going forward, we will originate to sell. That's our plan, always has been, and it's going to be our plan.
spk06: Okay, John. Yeah, I know I said I only have one more question, but I guess I lied because you did such a good job of talking that you made me think of one other thing. The warehouse line you've got, it's for $50 million or whatever. And it seems very obvious that based on the partners you're getting to buy these loans and how they're saying, hey, we want $20 million of these or $5 million of these or however much they want on a weekly, monthly, yearly basis or whatever. And given that you're only going to be – you're going to be taking up less than half a percent of the market, the numbers you're throwing out. when are you going to like outgrow that warehouse facility? Because it seems like you could do that very easily. And I mean, anyone that looks at your resume, like can figure out, you know, everybody in this space. So like at what point does 50 million, you know, plus the 50 or so million or 60 million you guys have in cash and investments. Oh, I'm like, when does that become not enough for you all?
spk03: No, first off, thanks for the compliment. Number one, number two is, well aware of it like we we've already going down a path on a second line but the reality is that getting these takeouts set up if you do this properly we should be in an ideal world sweep loans every three days so you could take 50 million and you really could do a lot with 50 million however with the volumes that we have expectations with our ability to market with our back office operations our view is we're going to need a lot more warehouse line um we are working on that right now, but the fact of the matter is priority is selling loans and get our partnerships for the different products set up. So in parallel, yes, we're looking at other warehouse lines. Our current partner, Flagstar, is a great partner. I'm sure they'll increase our lines as we demonstrate velocity. On the flip side, we are very focused on selling loans. In an ideal world, I want to sell loans every three days. So you can do the math, $50 million returning loans every three to five days. there's a room to really turn those lines, to really leverage those lines. So we don't need those today just yet, but we're addressing it. And we see the need for warehouse lines to be, it's a greater need.
spk05: Cool. Does that answer your question, Jeff? Yeah, yeah, yeah.
spk06: I'm really looking forward to more updates from you all. You all are doing everything amazingly well. I appreciate it.
spk05: Thanks for the time.
spk02: As there are no other questions in the queue, we'll answer a couple of questions that came in prior to the call, a lot of which have been addressed already, but there's a few that are still outstanding. Jason, how do you monitor the health of your loan book?
spk03: Look, we have some processes in place. So we have, again, we have an extremely experienced asset management team in India. We do weekly reviews of our portfolio. Any loan that's slow playing, that's, you know, payments due on, say, for example, the 10th, if it's not been made, we have our asset management team sits on top of the servicers, and they have the servicers reaching out to borrowers. And these are, again, these are real estate investors, builders. We have them prodding them to make their payments. We even have an aggressive door knocker you know, we send somebody out to tap the person on the shoulder, make their payment. So we're all over, we are all over the servicing of these loans. And to date, our book's very healthy. But at the same time, you know, we're actively reviewing it on a weekly basis. And that's, it's been very good. It's helped our portfolio stay very, stay performing. So furthermore, just to kind of, I think I mentioned this earlier, but With the headwinds in the real estate market and the concerns around the real estate market, on the bridge space side, we lowered our LTCs and LTVs by 10 points. And the view was that the days on market and housing should take a little longer. We had historically short levels on days on market a year ago from the historically low interest rates. With rising rates and a slowing down of housing, we figured by lowering our LTCs and our LTVs, we would be cautious by entering into bridge loans that should make it more attractive for our end buyers to buy. And it's worked out so far. What does your average borrower look like? Our average borrower on the bridge side is effectively a builder or a real estate investor that we target, as I mentioned earlier. We want a borrower who's done six to seven flips or renovations in the last 24 months. So that's our target audience. We have people in there who have done 30, 40, and we have people that have done three or four. But our target's around seven for the flip bridge business. And then when you look at the DSCR rental side, ideal role, we like to see people have at least a minimum of two to three rental properties. But if there's a lower LTV involved, we'll do some first-time rental. But for the most part, we want to see a borrower with two to three properties that they have experience renting out.
spk02: And why would someone use us AMC as opposed to another lender?
spk03: Well, again, I think I think the one question is why wouldn't somebody go to a bank first before us? Speed, experience, access to, you know, we can customize product and distribute it. You know, typically when you're working with a bank, that's not their specialty. That's not what they do. This is what we do for a living. We have a lot of outlets. We understand what can get done and where it can go, number one. Two is speed. We can close quick if it's a good opportunity and we like the opportunity, we can close quick, much quicker than a bank can. So that's just That's two main reasons, and the other part is bespoke. A lot of what we do is more customized, so what you'll find is if you go to a bank, you either fit the credit box they provide or the real estate box they provide, otherwise you don't fit. Here, we look at it, we try to figure out how to get it done and execute on a bespoke manner. You talked about this a little bit earlier, but what do companies in this space trade for in the market? Again, as I mentioned earlier to Matt, A lot of these companies are private, so a lot of our peers were private and got bought by larger money managers. Generally speaking, the proven platforms have traded at a 9 to 12 times net income multiple. Again, these are private transactions, so it's hard to go point to public, but I've been in and around this space for 10 years now, and there's been quite a few trades where money managers or hedge funds come in and bought a platform at a 9 to 12 times net income earnings.
spk02: Have you considered using baby bonds for raising capital?
spk03: You know, look, for us, ultimately, if we use, we have looked at different forms of debt, because we're going to need to grow our warehouse book, and there's going to be some growth capital we're going to need at some point to grow the originations. So we're definitely looking at it. We haven't done anything yet, but we are looking at that market, and we are open to gathering information. What we are focused on is our takeouts right now, so...
spk02: Is the company looking to buy back any additional shares since the Putnam transaction?
spk03: Look, I think at the end of the day, once we start selling on a forward basis, on a programmatic, regular basis, as we're selling our originations, that's the most important focus, as I keep saying throughout this call. Once we have that established, the ability to go back, buy back stock, or do other creative actions to benefit shareholders is always in front of us, and we'll definitely consider it.
spk02: Then just a couple of questions on the general market. How long do you expect it to take for margins to rebound or be normalized in the sector? I don't have a crystal ball.
spk03: I don't think anybody has a crystal ball. The view is we're in for a longer process to fix the economy. With that being said, clarity on where rates are headed, clarity on borrower behavior, clarity on unemployment and housing are all major factors right now. What we're seeing is the securitization markets definitely froze up and that's caused some limited liquidity, but insurance and banks have a ton of money and we see them actually participating. I think a more normalization or stable environment will probably happen over the next six to nine months. And that will just, what that will do for us is it create more liquidity, which should effectively expand our margins. I feel in the current environment, we still can earn a very good return on equity, very attractive to what we expect. But when the market stabilizes, our margins should widen out more. Kevin, I think that's the only questions we have. I appreciate everybody's time today. We're very excited about the business. We're very happy with what we've gotten accomplished in the five or so months since I've been here. We have a tremendous team. I want to thank my people in India. They're incredibly important to what we do. The team in Tampa have been nothing but a blessing, and St. Croix is St. Croix. These are good people. So I'm very thankful who we have and what we've accomplished in the last five-plus months. So I look forward to continuing the growth and push the business forward.
spk02: And, Kevin, I think I'm it. That's all I have. Yeah, if you have a question we weren't able to get to in the session or didn't get to submit, please don't hesitate to reach out to our investor relations email or phone number. Thanks. Thank you.
spk01: Thank you for your participation, ladies and gentlemen. You may now disconnect.
Disclaimer